Doubtful New CMHC Insurance Rates Will Dampen Demand

Mortgage insurance may cost more, but that likely won’t have a major impact on demand.

On March 17, CMHC officially began charging homeowners a higher percentage of their mortgage’s value in order to insure it. The rates differ depending on the mortgage amount and the amount of equity the owner has in the property.

For many years, buyers who made down payments of less than 20 per cent of the purchase price of their home have been legally required to pay mortgage insurance. It’s a way to protect the mortgage lender in the event the homeowner defaults on the loan.

But CMHC says its third increase in mortgage insurance in a four-year period is not targeting new home buyers, many of whom are feeling the effects of other changes, including a stress test designed to ensure they can continue to pay their mortgages as rates rise and an increase in both mortgage rates and home prices in some markets.

In fact, few new buyers are likely to be discouraged by CMHC’s recent increase: it’s relatively small.

And those home buyers with smaller down payments will pay less than those with larger down payments (who are paying higher home prices).

According to a recent article in the Globe and Mail, a buyer with a 5% down payment on a $150,000 mortgage will pay an increase of approximately $2.82 more per month.

For a buyer with a 15% down payment on an $850,000 mortgage, premiums will increase by almost $40 more per month.