Despite billion dollar profits, stricter lending guidelines and a robust housing market, CMHC is spearheading an increase to mortgage insurance premiums. These premiums are a necessary evil for home buyers with less than 20% downpayment. The new premiums take effect May 1st, but don’t impact mortgage applications that have been submitted prior to the May 1 deadline regardless of the actual closing date. As is standard practice in this oligopoly, when CMHC changes its premiums, so does the rest of the market.
Premiums are scheduled to increase by a whopping 14.5%. A 5% downpayment borrower with a $450,000 mortgage will incur an additional $1,800 in insurance costs which will be capitalized to the mortgage. Over the life of the mortgage this will balloon out to more than $2,580 in additional expenses. CMHC is selling this as a modest increase to the monthly payment. This is nothing more than a blatant attempt to redirect attention from the significant increase that it is.
CMHC’s 2013 premium revenue is tracking towards $1.3 billion and a 14.5% increase represents a bump of over $188 million in annual revenue. This additional revenue doesn’t require any additional business, labour or effort and will flow directly to the crown corporation’s bottom line. Although CMHC cites increasing capital requirements to justify the increase, they are currently operating at 243% above the currently mandated minimum capital requirements.
The truth of the matter is that CMHC has become a large corporate machine that’s expensive to maintain and operate. Recent mortgage insurance rule changes have restricted mortgage insurers from the refinance market and the rental property market and have created a revenue void. Rather than shrink the size of the corporation, they have decided to increase premiums to continue to feed the machine. The Canadian government supports the move as it can only help to cool the housing market while effectively increasing taxation. Public opinion is also supportive of the move as our conservative Canadian nature likes the reassurance of a stronger financial system.
Although the net effect of the premium increase will be negligible to the average home buyer, this is just an opportunistic money grab by the crown corporation.