The premium increase will take affect on May 1st and will be applicable to all mortgages that are insured under the National Housing Act’s mortgage insurance program. This change is a direct response to the increasing levels of risk in the housing market and is designed to ensure that the CMHC can remain financially viable in the future.
This premium increase will affect all homebuyers who need to utilize mortgage insurance, as well as lenders who are required to pay a portion of the premium. CMHC estimates that the increase in premium will result in a total maximum of $5,000 for an average homeowner making a five-year fixed rate mortgage purchase of $500,000. This increase will not only impact current buyers, but also future borrowers, as these premiums will be locked in for the life of the loan.
CMHC’s decision to raise premiums has been met with both criticism and support. Those who oppose the premium hike point out that it may cause a decrease in the number of first time buyers entering the housing market and drive up the cost of borrowing. They feel that the increased cost of borrowing will prevent many potential homeowners from being able to get into the market. Other critics suggest that CMHC’s move is nothing more than an attempt to generate more revenue for the corporation, as the increase in premiums will result in higher profits for the company.
On the other hand, those who are in favour of CMHC’s decision to raise premiums point out that it is a necessary step in order to protect the Canadian housing market and financial system from potential risks. Proponents of the premium hike argue that it will allow the CMHC to remain financially stable and help prevent a housing market crash in the future. They point out that by ensuring that the CMHC has sufficient funds to cover its liabilities, it will be better equipped to handle any economic downturn and provide support to Canadians in need.
The CMHC has taken steps to alleviate the burden placed on those affected by the increase in premiums. It has announced measures such as curtailing fees on long term close protection and extending flexible borrowing options. Furthermore, they have stated that borrowers with an insured loan-to-value ratio greater than 80% may still qualify for the regular insurance premium rate through the Flex Down program and the Family Protection plan.
Overall, CMHC’s decision to raise premiums carries both risks and benefits, and the full implications of this move are yet to be seen. As the premium hikes take effect on May 1st, only time will tell what kind of effect they will have on the Canadian housing market and the people who rely on mortgage insurance to finance their home purchases.
The Canadian Mortgage and Housing Corporation (CMHC) recently announced plans to raise premiums for mortgage insurance, effective May 1st. This decision is prompted by the increasing levels of risk in the housing market, and designed to ensure that the CMHC remains financially viable. The premium increase will affect all homebuyers who need to utilize mortgage insurance, and lenders who are required to pay a portion of the premium. An average homeowner making a five-year fixed rate mortgage purchase of $500,000 would see a total maximum of $5,000 in premium rises.
The move has been met with both criticism and support; opponents fear that the increased cost of borrowing would prevent many potential homeowners from getting onto the housing ladder, while proponents insist that it is a necessary step in order to protect the Canadian housing market and financial system from potential risks. To reduce the burden of the increase in premiums, CMHC have made various measures available, such as curtailing fees on long term close protection and extending flexible borrowing options.
Only time will tell what the full impact of the premium hike will be on the housing market; the main difficulty associated with the change lies in predicting how much of an effect the increased premiums will have on the Canadian economy. Analyses have suggested that an increase in mortgage insurance premiums may put further downward pressure on home prices, as rising costs will deter buyers from entering the housing market. This could reduce consumer spending in other sectors such as automobiles, furniture, and other big-ticket items. On the other hand, if the increase in premiums allows the CMHC to become more financially stable, it may help to increase consumer confidence and promote borrowing activity in the long run.
In conclusion, the outcomes of the CMHC’s decision to raise mortgage insurance premiums are uncertain. The increase in premiums will no doubt have negative effects on some homebuyers, but it could also have positive impacts in terms of protecting the Canadian housing market and financial system in the long run. Ultimately, only time will tell what kind of effect the premium hike will have on the Canadian housing market and the people who rely on mortgage insurance to finance their home purchases.
This article was contributed on Oct 18, 2023