Canada raises mortgage insurance premiums

PUBLISHED : Wednesday, 08 April, 2015, 6:00am
UPDATED : Wednesday, 08 April, 2015, 6:00am

Canada's national housing agency increased mortgage insurance fees for borrowers with less than a 10 per cent down payment in a bid to curb taxpayer risk to defaults as housing markets continue to soar.

Canada Mortgage and Housing Corp raised its premium by about 15 per cent for those mortgages after conducting an annual review, the state-owned insurer said in a statement. The change is effective starting June 1.

The Ottawa-based agency has been moving towards reducing the amount of risk it shoulders amid growing worries over rising household debt levels and overheated home prices, a trend that may be aggravated by falling interest rates after the Bank of Canada lowered its policy rate in January.

The premium increase reflected higher capital requirements aimed at "reducing the exposure of government to severe economic conditions", said Steven Mennill, a senior vice-president of insurance.

Borrowers who put less money down to buy a home carried higher risk with less ability to withstand a housing shock, said Brian Nash, the agency's chief financial officer. The loans require higher levels of capital and higher premiums to back them.

The January rate cut is helping sustain demand for homes even as the country suffers from an oil shock. Vancouver's real estate board announced earlier on Thursday that the average price for detached homes in the city surpassed C$1.4 million for the first time last month as purchases surged 54 per cent from a year earlier. For someone paying 5 per cent down to buy a C$575,916 home - the average sale price in Toronto in January - the premium payment would rise to C$19,696 at the higher 3.6 per cent premium. That is up from C$17,234 at the current fee of 3.15 per cent.

CMHC said it did not expect this move to have a material impact on housing markets. The agency insures mortgages against default and is backed by the federal government. By law, Canadian mortgages with less than a 20 per cent down payment must be insured.