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First-time home buyers will be hardest hit by mortgage insurance premium increase
Mar 06, 2014
by Todd Lewys
On February 28, the Canadian Mortgage and Housing Corporation (CMHC) announced that mortgage insurance premiums will increase by 15 per cent effective May 1.
According to the press release issued by the CMHC, the change will affect consumers only minimally, with the average home buyer experiencing an increase of approximately $5 per month to their mortgage payment.
Although the CMHC tried to downplay the increase — their stance is that it “isn’t expected to have a material impact on the housing market” — it’s one that figures to resonate loudly with first-time home buyers, said WinnipegREALTORS® president David Powell.
 “It’s a change that’s going to hit hard because it’s just going to add to all the costs that first-time home buyers have to pay,” he said. “It’s just another added cost in an already onerous buying process that’s only going to benefit one party: the federal government.”
Powell added that the policy change took everyone by surprise.
“You know, it came right out of left field,” he said. “I was at a CMHC breakfast a couple of weeks ago and there was no mention of the change then. 
“Quite frankly,” he added, “it isn’t necessary. Right now, we’re in a nice, balanced market that’s benefitting all consumers. Both buyers and sellers will be affected by the change in policy when it takes effect on May 1.”
Darryl Harris, an Accredited Mortgage Professional (AMP) with Verico One Link Mortgage & Financial in Winnipeg, agreed with Powell.
“In and of itself, it doesn’t seem like a big thing,” he said. “At the same time, it’s just another thing added on top of an already high cost of owning a home. The change will likely have a more significant impact on larger markets where housing is more expensive. 
“Winnipeg still has one of the lowest average home prices in Canada, so I don’t anticipate the market changing that much here,” he added. “At worst, my hope is that first-time buyers might have to wait a few months to save up for the extra costs they’re going to incur.”
That said, the premium increase could have the same effect that reducing amortization periods from 30 to 25 years had, according to Harris.
“There’s a good chance that people will run out to buy homes in an effort to get in ahead of the increase, so it’s quite possible there will be a home buying fury up to May 1, then the market will get back to normal. We’ve also had a relatively quiet winter due to the cold weather, so there could also be pent-up demand. The market from early March to May 1 could be quite an active one.”
As for activity after the day the insurance premium increase takes effect? “Even after the increase, I don’t think the home buying market will be affected in a huge way,” said Harris. “The desire for home ownership is still strong, so people will likely continue to find a way to own a home.”
Powell said he isn’t so sure about that.
“Right now, a first-time buyer can put down a five per cent down payment, then two per cent down on the land transfer tax and other closing costs (including CMHC insurance). The CMHC increase — which would be approximately a half percentage point — would, on a $200,000 home, add another $1,000 that a buyer didn’t anticipate, even more with a more expensive home. They may not have that extra money, and that could mean the difference between owning a home and not being able to afford the cost of owning a home.”
Harris said he’s mildly concerned that CMHC will, at some point, take the minimum down payment from five per cent to 10 per cent.
“Who knows,” he commented. “If the housing market continues to steamroll, they may look at taking the minimum down payment up to 10 per cent to slow it down. 
“Needless to say, doing that would have a large impact on Canada’s housing market, and it wouldn’t be a positive one. 
“For the time being, first-time home buyers will have to deal with the looming insurance premium increase, and that’s enough to think about,” he added.
In its press release, CMHC said  current mortgage loan insurance premiums will apply for applications submitted to the federal agency prior to May 1, regardless of the closing date of a home purchase.