Home buyers face higher mortgage insurance costs next week

Canadian home buyers with small downpayments face a hike in mortgage insurance premiums next week. But market watchers say the increases likely won’t be enough to slow sales in what has lately been a hot housing market in many areas, helped in large part by historically low mortgage rates.

In February, CMHC announced it would hike premiums for default insurance by an average of 15 per cent effective May 1. The increase would hit buyers who have a downpayment of less than 20 per cent.

Soon after CMHC served notice of the increase, private sector competitors Genworth Canada and Canada Guaranty matched the increases.

The increases will only affect new policies, not mortgages already in existence. 

The highest premiums are paid by those who put down just five per cent of the home’s purchase price. At that level, the mortgage insurance premium rises from 2.75 per cent to 3.15 per cent.

On a $450,000 mortgage at 3.49 per cent amortized over 25 years, the insurance fee would rise from $12,375 to $14,175. While $1,800 sounds like a big increase, it can be financed over the life of the whole mortgage , so the monthly cost of the insurance premium in this case would rise by less than $9 a month. CMHC estimates that for the average buyer needing insured financing, the new rates will add about $5 a month.

To be eligible for the lower mortgage insurance premiums, lenders have to submit their requests for mortgage loan insurance before  May 1. The closing date of the home purchase is not the determining factor.

For that reason, some lenders have been imposing their own deadlines of April 26, 27, or 28 to submit applications to get the lower mortgage loan insurance rates, according to a post this week on the mortgage blog Canadian Mortgage Trends.

Real estate markets in several parts of Canada have been exceptionally strong in the last few years, with average prices hitting record highs.

And while sales in many markets have been ramping up recently, industry professionals say that’s due to the arrival of the peak spring buying season and mortgage rates that are still historically low.

“Speaking to some of our partners — credit unions and brokers — no one’s noticed a huge increase in activity specifically because of higher mortgage insurance rates,” Kelvin Mangaroo, president of the rate comparison site RateSupermarket.ca, told CBC News. "It's just a few dollars a month."

The head of a leading mortgage industry group agrees that the coming rate hikes aren't enough, by themselves, to turn renters into buyers, but said they might have moved up someone's decision to buy.     

"I think for people who require mortgage insurance, [the imminent premium hike] may have made for some quicker decisions," said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals. "Certainly, anecdotally, we have heard from members that people are very aware of this happening. But I don’t think it's had a dramatic impact."