Increased Premiums for CMHC
Wednesday, April 22nd, 2015
As you may or may not be aware, lenders offering a mortgage to those purchasing a home with less than a 20 percent down payment usually require that mortgage be backed by mortgage loan insurance; the most familiar provider of mortgage loan insurance is the Canada Mortgage and Housing Corporation, a government of Canada operation. This is a good thing, as it protects banks against defaults, while lowering the barrier to entry into the housing market. Homebuyers can purchase (typically their first) homes with as little as five percent down, so long as they’re willing to pay the CMHC premium as part of their mortgage.
Last month, CMHC announced it was increasing premiums effective June 1, 2015. These new premiums only affect buyers with a down payment of less than ten percent, and are intended to maintain CMHC’s capital holdings.
Homebuyers putting ten percent or less down will now pay a CMHC premium of 3.85 percent, up from 3.35 percent. According to CMHC, this should result in affected buyers paying about $5 per month more in insurance.
Like all insurance companies, CMHC maintains a large amount of capital holdings, which rise and fall as investments do. The money the company makes on these investments helps to pay for claims; by using this model, insurance companies are able to keep premiums relatively low while still having cash on hand to pay claims. So there you go; the more you know.
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