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What is the New Risk Fee on CMHC Insurance?

18 December 2013

It wasn’t that long ago that we wrote a post about the new risk fee imposed on CMHC, that will begin being charged in 2014. While our earlier post spoke about how it would be the private insurers, Genworth and Canada Guaranty, that benefit the most from this, we’ve received lots of questions asking us to explain this risk fee a little more in-depth. So, here we go.

Beginning on January 1, 2014, the Canada Mortgage and Housing Corporation will be charged a “3.25 per cent of premiums written and 10 basis points on new portfolio insurance written,” stated CMHC in a financial report. That means that any new mortgages that CMHC insures, they will be charged that 3.25 per cent fee for them. It’s a move that protects the federal government and therefore, protects the taxpayers’ dollars that so many people are often worried are at risk.

The move seems to be one of many made to CMHC, and to the housing market in general, in order to try and reign in the amount of risk that’s been piling up over the past couple of years.

“The fees compensate the government for risks stemming from its guarantee of mortgage insurance,” said Stephanie Rubec, spokesperson for the federal finance department. “This measure supports the government’s continuous efforts to reinforce the housing finance framework.”

Because the fees will most likely be passed down to the lender, in part anyway, the move could cause mortgage rates to increase by as many as 10 basis points or 0.10 percentage points. But even at those rates, Peter Routledge, analyst with National Bank Financial, doesn’t believe that the move will play a major role in housing demand.

“What the government’s trying to do is really lean into the interest-rate wind and, in a very targeted way, keep the cost of borrowing for household steady,” he said during a phone interview. “They’re trying to tighten the interest-rate environment in one very targeted segment of the economy.”

The fee will result in the federal government receiving about $50 million a year from CMHC on an annual basis.

Now that we’ve explained it a bit better, what do you think of the new CMHC risk fee?

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