Move would add about $6 a month to a $300,000 mortgage if you have a small down payment
Mortgage insurer Genworth Canada has matched the CMHC's hike late last week to the amount it charges borrowers with very little money down to insure their loans.
On Monday, Genworth announced it would match the CMHC's move on Friday to hike the premiums it charges to home buyers who borrow at least 90 per cent of the purchase price of a home. Starting June 1, those borrowers will pay about 15 per cent more for mortgage insurance.
Unlike home insurance which the homeowner pays for and is also the beneficiary of, mortgage insurance is paid by the homeowner, but it only pays out to the financial institution that loaned them the money if the borrower defaults.
By law, anyone who wants to purchase a home in Canada with less than 20 per cent as a down payment must purchase mortgage insurance from either the CMHC or one of its rivals like Genworth. (If you have more than 20 per cent down you're deemed to be a better risk so you're not obligated to purchase insurance for it.)
Based on current home prices, the premiums can be thousands of dollars over the life of a mortgage, but are generally only a few dollars per mortgage payment.
Premiums for those putting down more than 10 per cent on a house up front won't change, but under the new rules, the premium for a 95 per cent loan ratio will go from 3.15 per cent to 3.6 per cent, and the premium for a non-traditional down payment in the 90 to 95 per cent range will be hiked from 3.35 per cent to 3.85 per cent.
The changes won't affect anyone who already has mortgage insurance, but will be in effect for any loan applications that come in dated later than June 1.
By the numbers: What will it cost?
For a first-time home buyer who's putting five per cent down and applying for a $300,000 mortgage, the new rules would add $6 to their monthly mortgage payment — assuming it's a 25-year mortgage at 2.79 per cent, which is the benchmark posted rate for most of Canada's big five banks at the moment.
"This new pricing is reflective of higher capital requirements and supports the long-term health of Canada's housing finance system," Genworth CEO Stuart Levings said. "Genworth Canada remains committed to helping Canadians achieve home ownership responsibly and we believe these changes will not have a material impact on affordability."