A real estate sign sits on the front lawn of a home in Toronto in this file photo.Fred Lum/The Globe and Mail
Genworth Canada says it will be increasing the premium for some of its mortgage insurance, starting June 1, matching a move announced last week by Canada Mortgage and Housing Corp.
The rate will go up by 15 per cent for buyers who have a downpayment of 10 per cent or less.
Mortgage insurance provides protection for lenders who provide money to home buyers and owners. The homebuyer's or owner's premium is determined by several factors including how much is borrowed and how much the property is worth.
Genworth says it believes the higher premiums for people with small down payments won't have a major impact on home affordability but the higher pricing will support the long-term health of Canada's system for financing housing.
The new rate for a loan-to-value ratio up to 95 per cent is 3.6 per cent, up from 3.15 per cent. For a loan-to-value ratio from 90.01 to 95 per cent, but a non-traditional down payment, the premium climbs to 3.85 per cent from 3.35 per cent.
The company said its decision to raise premiums was independent of CMHC's announcement last week and that it had not had any discussions with the federal housing agency in the lead-up to the changes.
"Our decision to increase premiums was an independent decision, and we believe that our premium increases are in the best interests of our stakeholders," CEO Stuart Levings said in an e-mailed statement to the Globe and Mail. "Genworth Canada conducts its own annual pricing review and has always supported the need for premiums to appropriately support the level of risk being insured and the amount of capital required to support that risk."
The changes will affect a large number of the company's newly insured mortgages, which had an average down payment of 10 per cent in the final quarter of last year. While the hike in premiums will be good news for Genworth shareholders, the boost from higher earnings is expected to be offset by "increasing concerns on Canadian economic growth and consumer leverage," Macquarie Capital Markets senior research associate Asim Imran wrote in a note to investors Monday.