A leading mortgage insurer is following the lead taken by Canada Mortgage and Housing Corp. last week, raising premium rates for buyers who have a down payment of 10 per cent or less.
Genworth Canada says it will increase rates by 15 per cent for such buyers beginning June 1. The new rate for a loan-to-value ratio from 90.01 per cent is 3.6 per cent—up from 3.15 per cent. For a non-traditional down payment, that figure jumps to 3.85 per cent from 3.35 per cent.
“This new pricing is reflective of higher capital requirements and supports the long-term health of Canada’s housing finance system,” Genworth CEO Stuart Levings said. “Genworth Canada remains committed to helping Canadians achieve home ownership responsibly and we believe these changes will not have a material impact on affordability.”
The move follows a similar decision made by CMHC last week. Buyers with less than 10 per cent down, who do business with CMHC, will also face 15 per cent increases—something CMHC says will amount to about $5 on a monthly mortgage.
The changes will not apply to mortgages currently insured.
“This is not expected to have a material impact on housing markets,” CMHC said in a release.
The increases are the latest in a string of premium hikes, following the premium jumps from 2.75% to 2.15% in 2014, instituted by the Crown corporation.
Such actions, both by CMHC and private players, should not come as a shock said Benjamin Tal, deputy chief economist with CIBC.
“They stated that they would like to have more ‘price to risk’ in the system and this move is consistent with it,” Tal told the Financial Post
By law, anyone purchasing a home in Canada with less than 20 per cent down must purchase mortgage insurance, which pays out to the lender in the event the borrower defaults.