CMHC Hikes Premiums Again

If you plan to buy a home with less than 10% down and get CMHC insurance, get ready to pay another $450 per $100,000 of mortgage.

That’s what CMHC’s just-announced premium hike amounts to. Click here for details

It’s the second time in about a year that CMHC has raised its fees on homeowners. The new premiums are a 14-15% increase over today, or 31% if you compare them to CMHC’s fees last year.

CMHC’s move targets only those putting down less than 10%, which amounts to 56.8% of CMHC-insured borrowers, as of CMHC’s latest reported quarter. The company says the decision is not because of an increase in borrower risk.

“For the average Canadian homebuyer who has less than a 10% down payment, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment,” the agency said in its release today.

“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” said SVP of Insurance Steven Mennill. “The premium increase for homebuyers with less than a 10% down payment reflects CMHC’s target capital requirements, which were increased in mid-2014 (to 220% of the minimum OSFI requirements).”

We’ll probably know by next week if Genworth and Canada Guarantee follow CMHC’s lead. They did last time and there’s a fair chance they will again. A Genworth spokesperson said, “We are reviewing [CMHC’s announcement] and expect to release our official announcement early next week.”

Some quick notes for homebuyers:

  • If your loan-to-value is over 90% and your lender submits your complete application to CMHC before June 1, 2015, you’ll pay the old (cheaper) CMHC fees. It doesn’t matter when your mortgage closes.
  • Submitting a pre-approval as opposed to a complete application will not hold the old insurance premiums.
  • If you borrow your down payment, the fee is another 5 basis points (0.05%) higher, or 3.85% of the mortgage amount.
  • If you live in Manitoba, Ontario and Quebec, you also have to pay provincial sales tax on your default insurance. That sales tax cannot be rolled into the mortgage.
  1. Buckle your seat belts mortgage brokers in the Lower Mainland and Southwestern Ontario, postpone vacations till after June 1st. CMHC has just engineered another mini brushfire of first time homebuyers racing to beat the deadline and who could blame them? The premiums were already high and now higher still. It is starting to be puzzling why the Crown Corporation feels the need to lead in price increases. I get it that the other private enterprise insurers cannot be the first to initiate but still: two increases in less than 18 months is hard to fathom in a world of 1.7% annual inflation.

  2. There has been relentless criticism of CMHC from certain quarters for several years now. Empty talk of moral hazard, systemic risk to the tax-payer, an inability to maintain the original mandate of the corporation and other nonsense have taken it’s toll. The latest buzz about risk-sharing by the banks seems to have awakened the powers that be at OSFI and on Bay Street. However, instead of the lenders taking on a deductible as suggested, which would put their own money at risk, CMHC simply upped the fees and passed it on to the consumer. Problem solved.

  3. CMHC says the decision is not because of an increase in borrower risk.
    I think that we can agree that the risk of 5% lending is greater than with higher downs if we assume that the default numbers are equal at each level. Yet CMHC suggests that the number of 5% down buyers is low, and if their percentage of default is also low, then perhaps CMHC should be attacking those clients who produce the greatest losses under their current portfolio. or at least providing clarification to the definition of “high risk” as defined from their current arrears data.
    This answer following is not adding clarity as to why they are attacking (solely) lower downpayment home buyers:
    “The premium increase for homebuyers with less than a 10% down payment reflects CMHC’s target capital requirements, which were increased in mid-2014 (to 220% of the minimum OSFI requirements).”
    Surely this suggests that the whole portfolio is what is causing the”problem”

    1. Hi Bruce, On a related note, I’m trying to get some clarity from CMHC on why it had to target one LTV band to meet it’s capital requirements. Perhaps it’s a function of how CMHC calculates its capital target–not sure. Will post what I find out.

  4. Hi Rob,

    Great article as usual, far more in depth than most of the main-stream reporting on this issue. Especially the tid-bit about the extra fee involved if the down payment is borrowed.

    Perhaps the answer to your’s and Mr. Davison’s query as to why they seem to be targeting a particular band of borrowers, is that CMHC wishes to encourage down payments in excess of 10%

    1. Thanks Appraiser. I saw one media outlet quote CMHC as saying the move wasn’t reflective of any change in risk. And CMHC itself stated the reason was to boost its capital. So I’m inclined to dig further and see if there’s more to the story, akin to what you’re saying…or something else.

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