UPDATE 1-Canada housing agency to up some mortgage insurance premiums

Thu Apr 2, 2015 5:40pm EDT
 
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OTTAWA, April 2 (Reuters) - Canada's federal housing agency said on Thursday it will increase mortgage loan insurance premiums for home buyers with a less than 10 percent down payment, starting in June.

Premiums will increase by approximately 15 percent, the Canada Mortgage and Housing Corp (CMHC) said. Effected borrowers will see an increase of about C$5 ($4) to their monthly mortgage payment.

Though Canada avoided the worst of the global financial crisis, the strength of its housing market in the years since has raised concerns from some economists that the sector might be too strong.

Still, most expect Canada's housing market will see a soft landing and policymakers have repeatedly said they do not see a bubble.

A surprise interest rate cut from the Bank of Canada at the beginning of the year has also prompted worries that cheaper borrowing costs could see Canadians overextend themselves at a time when the household debt-to-income ratio is at a record high.

CMHC said the move came as enhancements to its capital modeling capabilities allowed it to be "more refined" in its pricing. The agency said it was not acting in response to a change in the risk profile of the mortgages, and it did not expect the move to have a material impact on housing markets.

Canada tightened the rules around government-backed mortgages four times between 2008 and 2012 in a bid to cool the market.

The changes announced Thursday do not apply to mortgages currently insured by CMHC, while portfolio and multi-unit insurance also remains unchanged. ($1 = 1.2560 Canadian dollars) (Reporting by Leah Schnurr, editing by Meredith Mazzilli and Ted Botha)