Canada Mortgage and Housing Corp. is raising the rates it charges to insure mortgage loans by an average of 15 per cent.
The federal agency said Friday that the new premiums will go into effect May 1 and apply to new mortgages, not those already insured.
How much the rates will increase depends on how much a prospective homebuyer is putting down on a purchase.
Financial institutions generally require mortgage loan insurance for buyers making a down payment of less than 20 per cent. The insurance protects the lenders from defaults, but the costs usually are paid by the borrowers.
Buyers making a 10 per cent down payment will see premiums rise to 2.4 per cent from two per cent; those with a 15 per cent down payment will see an increase to 1.8 per cent from 1.75 per cent.
The increases could add thousands to the overall cost of buying a home for those borrowing large amounts and putting little down, but CMHC estimated the increase will add about $5 per month to an average mortgage payments.
``This is not designed to affect housing market activity,'' said Steven Mennill, CMHC's vice-president of insurance operations.
The government-owned agency said the new rates are in response to its move to increase capital ratios, a measure of financial security.
``The international and Canadian regulatory guidelines over the past years have trended to higher capital holding levels for mortgage insurers and obviously we are no exception to that,'' said CMHC chief financial officer Brian Naish.
CMHC, which reviews its premiums on an annual basis, said it will start announcing the results of the review every year.
The federal agency is the country's largest insurer of home mortgages.
CMHC's insurance rates have remained stable for several years, but saw several changes in the early 2000s.
In 2006, CMHC added a homeowner premium surcharge for extended amortizations beyond 25 years and eliminated the application fee for all high-ratio applications. The agency cut premiums in 2005 and 2003.
CMHC premiums for home buyers were last increased in 1998.
Economists and policy-makers have been closely watching Canada's housing market for signs of trouble in recent months.
The housing market has been cited as a key risk to the economy.
Sales have dropped on a month-over-month basis for five consecutive months, according to the Canadian Real Estate Association.
The rate of housing starts also slowed in January compared with December, coming in at a seasonally adjusted annual rate of 180,248, down from 187,144 in last month of 2013.