Tuesday, January 14, 2014

New CMHC Risk Fee – what will it mean for home buyers?

Canada Mortgage and Housing Corporation will be charged a “risk fee” by the federal government beginning January 1, 2014.

The new fee is 3.25% of premiums written and 10 basis points (0.10%) on all new portfolio insurance (low-ratio bulk insurance) written.

Federal Finance Minister Jim Flaherty initiated the fee as part of his on going concerns that Canada’s housing market is over-valued.

CMHC is a federal Crown agency which insures against default on mortgages offered by lenders to home buyers who have less than a 20% down payment.

CMHC mortgage insurance is backed by the federal government and ultimately, by taxpayers. Buyers with as little as 5% down may qualify for a mortgage if they meet all requirements.

The fee is believed to be in response to a warning from the Washington, D.C. based International Monetary Fund (IMF). The IMF cautioned Canada that “over the long run, the need for extensive government backed mortgage insurance should be re-examined,” in a report on November 26, 2013. It also noted that “further measures should be considered to encourage appropriate risk retention.”

The fee is not expected to have a significant impact on the availability or cost of mortgages according to Cameron Muir, BC Real Estate Association Chief Economist. “However the fee will likely be passed on to home buyers in some manner or form,” he said.

CMHC estimates the fee will result in a payment to the federal government of about $50 million in 2014.

During the past five years, Minister Flaherty has tightened mortgage rules five times and also transferred oversight of CMHC to the federal Office of the Superintendent of Financial Institutions. (Source REBGV)