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Greg Bonnell

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Canadians with big mortgages secured with small down payments will likely have to start paying more for mortgage insurance next year, after the country’s top financial regulator moved to hike capital requirements for the industry.

The Office of the Superintendent of Financial Institutions issued new draft criteria on Friday for how much money federally-regulated mortgage insurers have to put behind their portfolios. The regulator is bringing in the new rules in an attempt to address riskier elements of Canada’s mortgage market.

Canadians who put down less than 20 per cent for their home’s purchase price need mortgage insurance. In Canada, the big players are the country’s housing agency Canada Mortgage and Housing Corporation, publicly-traded Genworth Canada MI, and Canada Guaranty.

OSFI said the draft requirements – which take effect Jan. 1 next year – incorporate new drivers of risk, including the creditworthiness of homeowner, the remaining amortization period and the outstanding loan balance.

“When house prices are high relative to borrower incomes, the new framework will require that more capital be set aside,” OSFI superintendent Jeremy Rudin said in a release Friday.

OSFI said it wants to ensure mortgage insurers are in a better position to “withstand severe, but plausible losses” stemming from their business.

WHAT IT COULD MEAN FOR HOMEBUYERS

If you're a homebuyer with a big balance outstanding on your mortgage and many years left to pay it off, you’re likely facing higher premiums for mortgage insurance.

In a statement, Genworth said it’s holding more capital than required by current rules and expects to be fully complaint with the new guidelines when they take effect.

It also warns the new rules “could lead to a corresponding increase in premium rates.”

In an email to BNN, CMHC said it supports “efforts that better position mortgage insurers to withstand severe economic challenges.”

Canada Guaranty was not immediately available for comment.