In the middle of January, it was announced by the Canada Mortgage and Housing Corporation (CMHC) that they would increase the insurance premiums that are attached to mortgages. Many buyers are under the impression that if they had a down payment of 20% or greater that this would not have an impact on them, WRONG!
Whether you are buying a new home, refinancing or transferring your mortgage, as long as the mortgage amount is greater than 65% of the appraised value of your home, the new premiums are likely to have an impact on you and your family. The chart above summarizes the premium increases for Loan to Values (LTV) as follows:
- Up to and including 65% are increasing by 0%
- Up to and including 75% are increasing by 127%
- Up to and including 80% are increasing by 92%
- Up to and including 85% are increasing by 56%
- Up to and including 90% are increasing by 29%
- Up to and including 95% are increasing by 11%
NOTE: Please keep in mind that the premiums for LTVs below 80% are paid by the lender while the premiums for LTVs above 80% are paid by the borrower.
It is highly likely that the lender accountable premiums will be passed on to the borrower via higher rates.
For simplicity, we will present our rate forecasts separately for LTVs less than 80% and for LTVs greater than 80%
Rates Up, Down, or Neutral?
Variable Rate Mortgages
Variable Rates (LTVs < 80%): Slightly Up
- Variable rate mortgages are Prime-based
- Ex. 5 Year Variable Rate Mortgage = Prime (2.70%) – Spread (0.50%) = 2.20%
- We do not think it is in the cards for the Bank of Canada to increase the Prime rate in Canada in the near future. If they did, the demand for our currency would start to go up, resulting in our products becoming more expensive for exports leading to a possible slowdown in the economy.
- Because the new premiums are an added cost of borrowing for lenders, it is likely that these costs will be passed along Canadians resulting in modest to neutral increases.
Variable Rate (LTVs > 80%): Neutral
- Given our forecast for the Prime rate, we believe that the new premiums will have a modest to neutral impact on high ratio variable rate mortgages.
Fixed Rate Mortgages
Fixed Rates (LTVs < 80%): Up
- Because the new premiums are an added cost of borrowing for lenders, it is highly likely that these costs will be passed along to the Canadian consumer resulting in increased fixed rates.
Fixed Rates (LTVs > 80%): Slightly Up
- Because the new premiums are an added cost of borrowing for borrowers, the projected rate increases will be modest to neutral.
To learn more about what impacts mortgage rates in Canada and see our monthly predictions, please feel free to subscribe for our monthly newsletters.