The Canadian Mortgage and Housing Corporation has announced an increase to mortgage loan insurance premiums by up to 126% beginning March 17.

 

Another Hit to Affordability

 

In yet another move that will impact the ability of purchasers to afford to buy a home, the increases will make it even more difficult for first-time buyers. This is the third increase in four years.

The rate for those with a 5% down payment will rise from 3.6% of the amount financed to 4% - an increase of more than 11%. 

 

For those mortgages with 25% down, the premium rises from .75% of the amount financed to 1.7%. That is an increase of over 126%.

 

Premium Increases

 

The following chart shows how much different loan amounts are affected:

 

Loan Size % of Price		Old Premium		New Premium		Increase		Percent Increase
65%		0.60%		0.60%		0		0%
75%		0.75%		1.70%		0.95		126.7%
80%		1.25%		2.40%		1.15		92.0%
85%		1.80%		2.80%		1.00		55.6%
90%		2.40%		3.10%		0.70		29.2%
95%		3.60%		4.00%		0.40		11.1%

 

Existing loans will not be impacted by the changes.

 

Impact on the Market

 

As with any increase, the new premiums will have an impact on how much home buyers can afford. By itself, this doesn't have a great impact. Add in recent increases to mortgage rates, along with tighter mortgage qualification rules introduced last year, and the impact is far greater.

All of these cumulative changes will lower affordability which, in turn, will curb demand. A drop in demand will, invariably, cause prices to drop (or at least to not rise as fast).

Our market is particularly tight in terms of supply right now. If, or when, that changes, we can expect a drop in prices as multiple offer situations become less of a norm and there becomes a more balanced market.