First the Canada Mortgage and Housing Corp. (CMHC), then the nation’s largest private mortgage insurer: are rising mortgage insurance costs a sign of larger things to come in the Canadian mortgage realm?
Direct Impacts of Rising Canadian Mortgage Insurance Rates
Both CMHC and private mortgage insurer Genworth Canada announced that they will be raising insurance costs by 15% for borrowers with less than 10% down payments on their homes. Simply put, the larger the mortgage-to-value ratio, the more expensive the insurance becomes.
The majority of homebuyers offering a less than 10% down payment on their new homes are first-time buyers, generally younger and often considered a slightly higher risk for mortgage insurers already. The lower down payments make mortgages that much riskier, as a default on the mortgage leaves a higher unpaid balance.
This will directly increase costs for buyers who can’t put together a down payment larger than 10% of their home’s value; as lenders take mortgage insurance payments into account, this can lower the mortgage value these borrowers qualify for and make it more difficult for them to get into their new homes.
A good mortgage broker will likely be able to help such buyers, yet the implications of these mortgage rate increases don’t end there.
Increasing Mortgage Insurance Could Spell Higher Mortgage Rates Across Canada
The record-low mortgage rates throughout Canada have attracted many buyers who might not otherwise qualify for higher-priced loans. Rising mortgage insurance rates could be a signal to lenders to become more conservative in their lending, and possibly to start raising their rates, as well.
Whether or not mortgage rates themselves will start to increase remains to be seen, but this is almost certainly just the first round of changes to mortgage insurance costs.