Why Mortgage Costs Might Rise

Why Mortgage Costs Might Rise

As a mortgage broker, I have been hearing whispers of more expensive mortgages for a little while now. Well, according to canadamortgagetrends.com, it’s official; mortgage costs are about to rise.

There are several reasons we may lose our current rock-bottom rates in Canada. Let’s look at why mortgage costs might rise, as well as how you may be affected next time you’re shopping for a mortgage.

Reason 1 – Changes in Guarantee Fees

If you have ever bought a house, you’re probably familiar with Canada Mortgage and Housing Corporation (CMHC) insurance. This insurance lets Canadians buy a home when they don’t have a 20 percent down payment.

In addition to their insurance, the CMHC also offers various programs to financial institutions. One such type of program, called the securitization guarantee, lets financial institutions take their mortgages, sell them to investors and generate new income. This new money can then be loaned back to Canadian homeowners in the form of new loans and mortgages. Of course, institutions must pay a fee to access these programs. In the coming weeks, the guarantee fees are changing.The new fee structure will cost institutions more money.

How does all this affect you? Chances are, if banks need to pay higher fees to the CMHC, they will raise their mortgage rates to compensate.

Reason 2 – Changes in Rules Regarding Non-CMHC Approved Securities

In addition to the above CMHC programs, financial institutions use other methods to generate new income. But those rules are also changing. Soon, lenders won’t be able to take CMHC-insured mortgages and place them in investments that aren’t approved by the CMHC.

How does this affect you? If lenders are forced to pay extra fees to have their mortgages in guaranteed programs, they will eventually pass on those costs to their clients.

Reason 3 – Six Month Deadline to Securitize Bulk Mortgages

Also known as portfolio insurance, lenders sometimes buy bulk insurance on their mortgages. In the upcoming rule changes, lenders are being given six months to securitize all bulk mortgages. What will happen to lenders who don’t comply by the deadline? The insurance on any non-securitized mortgages will be canceled.

So how will this new rule affect you? Along with higher fees, it may soon be harder to access short-term or variable rate loans. Refinancing a loan may also be more difficult – and more expensive.

So when are all of these changes taking place? The new mortgage rules are in effect as of July 1st 2016.Although they didn’t get the same media coverage as the new down payment rules, these changes were announced by the Department of Finance back in December 2015.

Bill Morneau, Minister of Finance, released the following quote in regards to all of the new Canadian housing market rules: “The Government’s role in housing is to set and maintain a framework that is equitable, stable and sustainable. The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions. They also rebalance government support for the housing sector to promote long-term stability and balanced economic growth.”