In Canada, if purchasing a home with less than 20% as down payment, it is required to have mortgage insurance cover the lender in case the borrower defaults. Currently, there are three mortgage insurance providers offering this service to lenders; CMHC, a crown corporation and Genworth & Canada Guaranty private mortgage insurance providers.
A lot of confusion has come out of recent headlines regarding CMHC planning to charge a risk fee premium. This is the most recent attempt by the finance minister to control the housing market. Along with tighter underwriting guidelines and qualification introduced in recent years, as of January 1, 2014, CMHC will start charging a 3.25% fee on their premiums. This small premium should NOT result in increased fees to the consumers.
For a year now Genworth & Canada Gauranty have paid this “risk fee” to the government. Although theirs is slightly lower at 2.25%. Because of market competition and having other insurers play the game the premiums with CMHC should stay at status quo.
What does this mean in terms of numbers?
The average CMHC Mortgage at 95% Loan to Value (ie- the borrower has a down payment of 5%) is $179 000 in Canada
Current Premium of 2.75% would add an additional $4,895 to the mortgage.
The new “risk fee” is 3.25% of the premium totaling $159.09. Even if CMHC added on the risk fee (an unlikely event) the premium would go from 2.75% to 2.78%. As mortgage insurance premiums get added to the mortgage and are not an upfront cost, this would not have an impact on the consumer.
