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Cost of mortgages may soon rise, due to CMHC changes

VANCOUVER (NEWS1130) – The cost of your mortgage might be rising soon, thanks to changes announced today by Canada Mortgage and Housing Corporation.

The agency has reduced the guarantees it offers banks on mortgage-backed securities. These guarantees cover mortgages the banks bundle up and sell as securities.

National Bank analyst Peter Routledge says the result could be a 20-to-65 basis point increase in the big banks’ cost of funding mortgages, which could lead to a rate increase for borrowers.

But TD Bank Economist Diana Petramala says even if the increase is at the higher end of that estimate, mortgage rates will remain relatively low.

“Low by historical standards and roughly more in-line to where it was in 2011,” she explains. “So the impact on the housing market is likely to be very limited.”

But the economist says the impact “could take some of the steam out of home sales and particularly prices.”

Mortgage broker Jessi Johnson says CMHC is attempting to protect taxpayers from risks in the mortgage industry.

“There’s no doubt this is part of their plan to cool the market further,” he says. “If you’re a homeowner, tactics like this essentially will mean the value of your home will not increase substantially as we’ve seen in the past 10 years.”

But he doesn’t believe prices will be going down.

CMHC has told mortgage lenders they will get no more than $350 million each in new guarantees this month.  As of July, they had taken up federal guarantees on $66 billion of this year’s $85-billion total.

CMHC cites an “unexpected increase” in mortgage-backed securities, which allow banks to issue more mortgages.