Earlier this month, the Federal government announced that, in an effort to further curb mortgage lending and prevent a housing bubble, it will now charge Canada Mortgage and Housing Corporation (CMHC) a "risk fee" on the insurance it writes.
CMHC offers mortgage default insurance for homebuyers who have less than 20% down. This insurance protects lenders if you can't fulfill your mortgage obligation - but the homebuyer is actually the one who pays the premium.
Unlike private insurers Genworth and Canada Guaranty, however, CMHC is a Crown corporation. If lenders are forced to use their CMHC insurance, it's actually the tax payer who's going to be picking up the tab. To add to the CMHC controversy, the Crown Corporation is backed 100% by the Federal government. If it gets into trouble, the government will completely bail it out. The other default insurers are only backed 90%.
To limit its exposure, as of January 1 the government will be charging CMHC a "risk fee" of 3.25% on all its insurance (a rate that is higher than the one already paid by private insurers), as well as capping the amount of insurance CMHC can issue at $600 billion.
Despite the steps to reign in CMHC's business, most experts believe the average consumer won't notice a difference. If you have any questions or concerns about your ability to qualify for a loan -- or any other mortgage-related questions -- please don't hesitate to drop us a line.
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