CMHC Announces Changes to Mortgage Default Insurance Premiums

  • April 9, 2015
  • John Rich

The Canada Mortgage and Housing Corporation (CMHC) recently announced it will be raising its mortgage default insurance (MDI) premiums on June 1, 2015, for homebuyers that finance home purchases with less than a 10% down payment. This fulfills CMHC’s August 2014 commitment that they would boost their capital reserves above the minimum set by the Office of the Superintendent of Financial Institutions.

The changes do not apply to mortgages currently insured by CMHC and the current premiums will apply to all MDI applications to CMHC before June 1, 2015, regardless of closing date.

For the average Canadian homebuyer with less than a 10% down payment, CMHC premiums will rise by 0.45% to 3.6% which translates into an increase of $5 in monthly mortgage payments; for those with a “non-traditional” down payment of less than 10%, premiums will increase by 0.5% to 3.85%, or about $6 per month[1].

The increase in monthly mortgage payments that will result from these changes to MDI premiums for home buyers with less than a 10% down payment is unlikely to have any effect on the affordability of homeownership. As such, these changes should not cause home sales activity or selling prices to decline in any meaningful way.

CREA continues to lobby the government on potential market-changing policy decisions, like a further decrease to amortization periods or an increase to the minimum down payment. Both have been floated in government circles for some time. While we have been successful to date, we continue to monitor the debate at the highest levels.

[1] In 2014, the average CMHC insured loan at 95% loan-to-value (LTV) was 252,530. Calculation of the difference in monthly payments based on a LTV of 95%, loan amount of $250,000, 5-year mortgage term, 2.79% mortgage interest rate, and loan amortization of 25 years.