Last week CMHC announced they would be raising the premiums they charge for mortgage insurance, and this week competitor Genworth made a similar announcement.
Some people mistakenly think they're buying insurance for themselves when they pay mortgage insurance premiums, when in fact the insurance helps protect the mortgage lender against defaults. The insurance enables buyers to purchase property with a 5%-20% down payment, with interest rates comparable to those with a down payment over 20%. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
The premium rates will apply for loan requests made on or after May 1, 2014. In their statement regarding the premium increases, CMHC said the new rates are not expected to have a material impact the housing market, since the premiums will only add $5/month to the average mortgage payment. When you look at the premiums on a $350,000 mortgage, with 5% down, the total additional fee is only $175. Would you change your mind on buying a home over $175? I have to agree with CMHC that this will have little to no impact on the market in Edmonton this year.