The corporation released a statement noting that there was a need to "implement targeted measures to ensure that the current mortgage rules remain appropriate and effective". It is working to adjust premiums to better reflect homebuyers' risk profiles, while providing borrowers with access to competitively priced insurance products.
The housing market has become more challenging due to two key factors; rising interest rates and lack of available inventory in many areas. Due to the higher costs associated with mortgage payments, more homeowners are facing difficulty securing mortgages or refinancing existing ones. As a result, the CMHC is aiming to create an environment where lenders have greater certainty when it comes to pricing a mortgage.
To achieve that, the corporation has proposed a new premium policy for insured mortgages that will lower the maximum allowable mortgage loan-to-value (LTV) and reduce the upfront premium payment for those mortgages. The reduced LTVs will be applied on a sliding scale depending on each borrower's loan profile, while the upfront premium will be reduced from the current 4% level to 2.75%.
The new policy is intended to help lower the risk associated with issuing mortgages by increasing the amount of upfront protection for mortgage providers. In addition, the CMHC believes that it will also reduce the overall cost of a mortgage by allowing lenders to pass the savings on to borrowers.
The premium cut is expected to take effect in May 2019 and the CMHC expects the changes to support increased affordability in the housing market.
The Canadian Mortgage and Housing Corporation (CMHC) recently made an announcement to address the difficulties of the current housing market. Over the past few months, rising interest rates and lack of available inventory in many areas have made it harder for homeowners to secure mortgages or refinance existing ones. To counter these difficulties, the CMHC proposed a new premium policy for insured mortgages that would lower the maximum allowable mortgage loan-to-value (LTV) and reduce the upfront premium payment for these mortgages.
Under this new policy, the upfront premium would be reduced from the current 4% level to 2.75% on a sliding scale depending on the borrower's loan profile. This would provide an additional layer of protection to lenders by reducing the amount of risk associated with issuing mortgages. Furthermore, it would also allow lenders to reduce the overall cost of a mortgage by passing on the savings to borrowers.
This proposed premium cut is expected to take effect in May 2019. It is the hope of the CMHC that this change will have a positive effect on affordability. The corporation believes the new policy will both make mortgages more available and decrease the overall cost of buying a home.
Overall, the Canadian Mortgage and Housing Corporation is looking to address the current housing market difficulties by offering a reduction in the upfront premium payment required for insured mortgages. The premium cut is expected to go into effect in May 2019 and should improve the overall accessibility and affordability of homes. The CMHC is hoping that this adjustment will provide an effective counterbalance to the tough housing market conditions.
This article was contributed on Aug 08, 2023