Mortgage before May: Rising mortgage insurance premiums bump up costs

Mortgage before May: Rising mortgage insurance premiums bump up costs

If you’re in the market for a mortgage, and have less than 20 per cent down payment, then you might want to get that mortgage before May.

For the first time in more than a decade, Canada Mortgage and Housing Corporation (CMHC) is raising premiums for insuring mortgages on Canadian homes: an average 15 per cent.  A crown corporation, CMHC is Canada’s largest mortgage insurance provider. Private insurer Genworth has followed suit with a matching increase in premiums.

How does it hit your wallet? A home buyer with a $248,000 mortgage and a 5 per cent down payment will pay an extra $5 per month in insurance premiums. Your mortgage broker can calculate exactly how much the increase will mean to you.

Canadian homebuyers are required to have mortgage insurance if they have less than 20 per cent equity in their homes. The insurance provides protection for the lender in the case of a default. In general, the system works well: Canadians have a vested interest in maximizing their down payment, and in building some equity in their homes, and a prudent mortgage insurance system has contributed to a stable mortgage market in Canada.

The last change in premiums was a decade ago: when CMHC actually lowered the rate.  Experts say the increase in premiums is probably overdue – as insurers must hold adequate capital reserves.

Will this be the last increase for the next ten years? CMHC expressed plans to announce its premiums in the first quarter of every year going forward. So stay tuned in early 2015 for any more news.

In the meantime, there’s no cause for alarm for Canadian home buyers.  But there is a strong incentive for homebuyers to visit their mortgage broker right away. The change will come into effect on May 1st.  Homebuyers will be able to access the current lower rates if they have bought a home and are approved before the May 1 deadline, even if they have a later closing date.

If you’ve got less than a 20 per cent down payment, then you owe yourself a visit to your mortgage broker now.