Mortgage costs about to rise for some Canadians

By Lydia McNutt
April 04, 2015

If you're planning to buy a home this year with less than 10 per cent down, you can also plan for higher mortgage costs as of June 1, 2015. Canada Mortgage and Housing Corp. announced last week that it is raising its mortgage insurance premiums by 15 per cent, after the housing authority increased its target capital requirements in mid-2014. Following in CMHC's footsteps, Genworth Canada announced this morning that it too is increasing its mortgage insurance premiums.

The move isn't expected to have a big impact on homebuyers' pocketbooks or Canada's housing markets, CMHC says. The higher premium would amount to an additional $5 per month for the typical borrower with a 95-per-cent loan-to-value ratio on a mortgage of $252,530. However, in Canada's pricier markets, those monthly mortgage costs will inevitably be higher. In addition, the looming rise in mortgage costs could also signal a busier-then-normal spring real estate market, as homebuyers try to beat the clock on the May 31 deadline.

info iconClick on the "info" icon to find out what the new insurance premiums will run you based on the loan amount (95-per-cent loan-to-value ratio):

 

The increase in mortgage insurance premiums reflects concerns that Canadians are overextending their budgets by taking on more home than they can afford, leaving them in a tight spot when interest rates rise or at the slightest economic turn.

Experts advise that homebuyers plan ahead, save their money and put down as much as possible, to avoid taking out a high-ratio mortgage. Homebuyers unable to save up this often hefty amount can still buy a home with a downpayment of less than 20 per cent, but federally regulated lenders require mortgage loan insurance, which covers them in case of payment default. The lender is responsible for the premiums and passes those costs on to the homebuyer in the form of a lump-sum payment, or more commonly, higher monthly payments.

CMHC is Canada's largest insurer of residential mortgages.

Existing mortgages, high-ratio mortgages with more than a 10-per-cent downpayment, and mortgages on multi-unit properties will not be affected by the premium increase.

Related reading:

Low mortgage rate could spell trouble for overextended Canadians

About Lydia McNutt

Lydia McNutt is an award-winning writer and editor.

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