3 Apr

Could CMHC change its one size fits all default insurance

General

Posted by: Rabinder Dhillon

Buy a house with less than a 20% down payment and you have to get mortgage default insurance. There’s no choice. The rules are dictated by Ottawa and protect the banks, in the event you default.

The rate you’ll be charged bears very little relation to your individual risk. You have a fantastic job, a great credit history and live in a part of the country where the housing market is on solid footing? Forget it, you’re paying the same premium as anyone else and it’s mostly based on your down payment.

“The mortgage insurance product, irrespective of who sells it, is the same product. There is less product differentiation that there is among choices of 89 octane unleaded gasoline,” says Finn Poschmann, Vice President of Research for the CD Howe Institute. “In gasoline, at least you can choose among ethanol content levels and detergents. Not so with mortgage insurance.”

Starting May 1st consumers will pay even more for this insurance, which provides a backstop to the entire Canadian economy given Ottawa is on the hook for close to the $1 trillion in mortgages it guarantees.

Click here to see the full Financial Post article.