CMHC mortgage insurance gets more expensive

Premiums on mortgage insurance from Canada Mortgage Housing Corp. went up across the country on Friday.

CMHC says its average client will pay about $5 more per month.

Mortgage insurance is required forhomebuyersmaking a down payment of less than 20 per cent. The priceof that insuranceis basedon the price of the home,which varies across Canada as calculations by mortgage-comparison website Ratehub.ca show.

• Analysis: Big banks sound alarm on Toronto home prices
• How to buy a home the right way, according to CMHC
• CMHC: Prices could drop 30% on interest rate spike

For example, ahomebuyerin Halifax, where the average home price is $279,362, would pay $4.71 more per month under CMHC's new premiums. That's an increase of $1,413 over the life of a 25-year mortgage.

In Vancouver, however, where the average price of a home has ballooned to $995,583, the new mortgage insurance premiums would cost $16.35 more each month or $4,904 over 25 years.

In both examples, Ratehub assumes buyers aremaking the minimum down payment required on a five-year, fixed-rate mortgage of 2.42 per cent amortized over 25 years.Mortgage insurance payments can also be made as a lump sum, rather than monthly payments.

Premium hikes follow new capital requirements

CMHC announced the premium increase in January, after the Office of the Superintendent of Financial Institutions (OSFI) implemented new rules requiring mortgage insurers to have more capital on hand as a hedge against potential losses. CMHC is a crown corporation, but OSFI'snew rules also apply to mortgage insurance companies, like Canada Guaranty and Genworth.

"We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home," said CMHCsenior vice-president Steven Mennillin January.

According to CMHC, the average insured mortgage was worth about $245,000 in the first nine months of 2016, with an average down payment of about eightper cent. The average gross debt service ratio (also known as the gross debt-to-income ratio, which measures the monthly cost of housing against monthly income) was25.6 per cent.

CMHC recommends that monthly housing costs be no more than 32 per cent of average gross monthly income.