CMHC to hike mortgage insurance premiums starting March 17

The Canada Mortgage and Housing Corporation will charge borrowers a few dollars more every month to insure their mortgages, starting in March.

The housing agency made the announcement in a release Tuesday.

Starting March 17, CMHC will chargemortgage holdersslightly more every month to insure their loans.

By law, anyone putting down less than 20 per cent of the purchase price of a home in Canada must pay mortgage insurance, even though the homeowners themselves don't benefit from thatcoverage. Rather, it's a fee borrowers payso if they default on loans, their lendersaren't on the hook. Instead,aninsurance payout would cover any defaultedloans.

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Premiums are calculated based on the amount borrowers are gettingversus the size of thedown payments.

Typically, CMHC fees are as little as 0.6 per cent of eachloan's value. But on smaller down payments and larger loans, the fees can mount to 3.6 per cent more than six times as much as the lowest rate.

In an expensive market such as Toronto, for example, where the latest figures show the average house price is $730,472,a borrower witha small down payment of less than 10 per cent would have to borrow $682,425 to buy the average house in that city, mortgage comparison website RateHub.ca calculates.

Under current rules, the CMHC charges 3.6 per cent to insure that mortgage, or$24,567 over the life of the loan.

Under new rules starting March 17, the CMHC will charge fourper cent of that loan's value to insure the loan. That pushesthe premium to$27,297, an increase of $2,730 or $12 a month.

Different borrowers will pay different amounts depending on how much they are borrowing, and how much equity they have.

The fee changes are outlined below:

CMHC says the average loan on its books is for about$245,000. It expects the changes announced Tuesday to work out toan extra $5 a month, on average, per borrower.

"We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home," said Steven Mennill, CMHC's senior vice-president of insurance."Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability."

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The changes will only affect mortgage applications received as ofMarch 17. Anyone whoalready has a mortgage or has applied for one will be grandfathered into the old rates.

As of Jan. 1 of this year, Canada's top banking regulator the Office of the Superintendent of Financial Institutions (OSFI) requiresbanks and insurers to hold more capital against the mortgages on their books. One of the easiest ways to do that is to pass those costs on to borrowers by charging them more to insure loans.

The last time the housing agencyhikedpremiums was in2015, when it hiked premiums by as much as15 per cent for some borrowers.

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