The Canada Mortgage and Housing Corporation (CMHC) announced an increase to their mortgage premiums this morning, set to take effect on March 17, 2017.
CMHC made the announcement just after their annual review of homeowner mortgage loan insurance premiums, projecting an average increase of five dollars per month for new mortgage borrowers throughout Canada. Mortgages currently insured by CMHC are not affected.
According to Steven Mennill, CMHC Senior Vice-President of Insurance, “We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home. Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
As of January 1, 2017, mortgage insurers have been required to hold additional capital as part of more stringent requirements set forth by the Office of the Superintendent of Financial Institutions. This capital is intended to offset any losses and boost long-term stability of the Canadian financial system. The stricter regulations were considered a key factor in today’s announcement.
Premiums are calculated based on the LTV, or Loan-to-Value ratio of the home being insured. This ratio is the total amount of the mortgage loan over the total property value. For example, if you were looking to purchase a home for $400,000 and you had a down payment of $50,000, you would require a mortgage loan in the amount of $350,000. The LTV ratio would be $350,000/$400,000 = 0.875 or 87.5 percent. The new premium for this LTV ratio would be 3.1 percent instead of the current 2.4 percent.
If you are looking to purchase a home in 2017, applications submitted to CMHC prior to March 17 will be subject to current premiums; the new rates will only impact mortgage loan insurance requests submitted on or after that date.
If you have any questions about the new premiums, or you would like to submit a mortgage application before the new rates come into effect, feel free to contact our office at (780) 416-1085 or by email at [email protected].