Following the annual review of its insurance products and capital requirements, CMHC will increase its mortgage loan insurance premiums for homeowner and 1 – 4 unit rental properties effective May 1, 2014.
The increase applies to mortgage loan insurance premiums for owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums. This does not apply to mortgages currently insured by CMHC.
CMHC’s capital management framework is consistent with international practices and Canadian guidelines for mortgage insurers. Increased capital targets are consistent with Canadian and international industry trends and makes the financial system more stable and resilient.
“The higher premiums reflect CMHC’s higher capital targets” said Steven Mennill, CMHC’s Vice-President, Insurance Operations. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”
For the average Canadian homebuyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.
Effective May 1
st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.
| Loan-to-Value Ratio | Standard Premium (Current) | Standard Premium (Effective May 1st, 2014) |
|---|
| Up to and including 65% | 0.50% | 0.60% |
| Up to and including 75% | 0.65% | 0.75% |
| Up to and including 80% | 1.00% | 1.25% |
| Up to and including 85% | 1.75% | 1.80% |
| Up to and including 90% | 2.00% | 2.40% |
| Up to and including 95% | 2.75% | 3.15% |
| 90.01% to 95% – Non-Traditional Down Payment | 2.90% | 3.35% |
CMHC reviews its premiums on an annual basis and, going forward, plans to announce decisions on premiums in the first quarter of each year. The homeowner premium increase follows changes CMHC made to its portfolio insurance product earlier this year.
Backgrounder
- Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
- CMHC mortgage loan insurance premium is calculated as a percentage of the loan based on the loan-to-value ratio. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and amortized over the life of the mortgage as part of regular mortgage payments.
- CMHC reviews its premiums on an annual basis and has adjusted them several times since being commercialized in 1998. Adjustments have included both increases and decreases to the premiums.
- CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to May 1, 2014, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
- The increase applies to mortgage loan insurance premiums for residential housing of 1-to-4 units. This includes owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums.
- In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000. Using these figures, the higher premium will result in an increase of approximately $5 to the monthly mortgage payment for the average Canadian homebuyer. This is not expected to have a material impact on the housing market.
95% Loan-to-Value
Loan Amount | $150,000 | $250,000 | $350,000 | $450,000 |
| Current Premium | $4,125 | $6,875 | $9,625 | $12,375 |
| New Premium | $4,725 | $7,875 | $11,025 | $14,175 |
| Additional Premium | $600 | $1,000 | $1,400 | $1,800 |
| Increase to Monthly Mortgage Payment | $3.00 | $4.98 | $6.99 | $8.98 |
85% Loan-to-Value
| Loan Amount | $150,000 | $250,000 | $350,000 | $450,000 |
| Current Premium | $2,625 | $4,375 | $6,125 | $7,875 |
| New Premium | $2,700 | $4,500 | $6,300 | $8,100 |
| Additional Premium | $75 | $125 | $175 | $225 |
| Increase to Monthly Mortgage Payment | $0.37 | $0.62 | $0.87 | $1.12 |
