Newly Introduced 30-Year Amortizations Won't Bolster the Demand for Mortgage Insurance in Canada

Morningstar DBRS published a commentary discussing the potential implications resulting from the announced introduction of 30-year amortizations on some Canadian insured mortgages.

Key highlights include the following:

-- Insured mortgages once accounted for more than half of all outstanding residential mortgages at Canadian chartered banks. Today, conventional mortgages are far more common.

-- The Government of Canada will allow 30-year amortizations for certain insured mortgages, but we believe that this will have a minimal impact on the insured mortgage market.

-- In the absence of additional amendments to the insured mortgage rules, we expect to see the proportion of insured mortgages continue to decline.

“In our assessment, the new 30-year amortization policy is not going to materially increase the demand for mortgage insurance,” said Nadja Dreff, Senior Vice President and Sector Lead, North American Insurance Ratings. “Firstly, the outlined conditions restrict eligibility to only a small proportion of potential borrowers. Secondly, longer amortization mortgages are more expensive to insure, reducing some of the affordability advantages offered by the longer amortization period.”