By Garry Marr

Published on April 2, 2015

Buyers with less than 10% down when purchasing a property are about to face a hike in their mortgage default insurance, if they do business with Canada Mortgage and Housing Corp.

“As a result of its annual review of its insurance products and capital requirements, CMHC is increasing its homeowner mortgage loan insurance premiums for homebuyers with less than a 10% down payment,” the Crown corporation said in a release.

Homeowners with less than a 20% downpayment must get mortgage insurance if they are borrowing from a financial institution regulated by the Bank Act. Buyers must also have at least 5% down. CMHC controls a majority of the market with private players Genworth and Canada Guaranty holding the rest.

This is not expected to have a material impact on housing markets

The new rates go into effect June 1 and mean mortgage default payments for people with 10% down or less will increase by 15%. The premium in that category will rise to 3.6% of the value of the mortgage from 3.15% which CMHC says amounts to about $5 on a monthly mortgage.

“This is not expected to have a material impact on housing markets,” the Crown corporation said in its release. The changes do not apply to mortgages currently insured by CMHC.

“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” Steven Mennill, senior vice-president, insurance, said in a release. “The premium increase for homebuyers with less than a 10% down payment reflects CMHC’s target capital requirements which were increased in mid-2014.”

The increase from CMHC follows increases the Crown corporation instituted last year, heading into the spring market. CMHC premiums jumped from 2.75% to 3.15% in 2014 and private players quickly followed.

Bejamin Tal, deputy chief economist with CIBC, said the fee hike does not come as a surprise. “They stated that they would like to have more ‘price to risk’ in the system and this move is consistent with it,” he said.

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