The Ins and Outs of CMHC Insurance
Do you wake up on Saturdays and find yourself wandering through open houses without knowing how you got there? Do you start discussing the relative merits of Ranch-style versus Colonial Revival with random people in the elevator? Do your friends and family ask you to stop sending them the dozens of MLS listings you see on a daily basis?
If this is you, you might be ready to buy a house. Congratulations! That’s exciting news. Now you only have to find a house, get a mortgage and buy CMHC insurance. Wait a minute, what’s CMHC insurance? An excellent question, my friend, and we have the answer.
Here are the top three things you need to know:
So, what’s the deal with CMHC?
The Canadian Mortgage Housing Corporation (CMHC) is a crown corporation that oversees the federal Mortgage Insurance Fund (MIF), a program designed to protect the lenders in the event borrowers are no longer able to make their payments.
Essentially, it’s a government designed program to make mortgage lending more attractive to banks. The extra insurance protection makes it affordable for the average Canadian to borrow the large amounts of money they need for a mortgage.
It’s important to know this is different than home insurance in that home insurance covers your home while CMHC insurances covers your mortgage in case something happens.
There is also mortgage life insurance that you can purchase separate from CMHC insurance and this covers your loan in the event you pass before it’s paid off.
The CMHC isn’t the only one that offers this mortgage default insurance, Genworth Financial and Canada Guaranty offer these services as well.
How much does CMHC insurance cost?
CMHC insurance is mandatory for anyone putting less than 20% down on their home purchase. It runs between 1.8% and 3.6% the total value of your mortgage. Anybody who puts between a 5% and 19.99% down payment on their home will pay a premium, here’s how the pay structure works.
Insurance Premium Paid Determined by Size of Down Payment | ||||
Down Payment (Money the buyer puts towards house purchase) | 5 – 9.99% | 10 – 14.99% | 15 – 19.99% | 20% and up |
Insurance Cost (Based on total cost of mortgage) | 3.60% | 2.40% | 1.8% | 0 |
Say you bought a house for $200,000. You use $20,000 as a down payment and you mortgage the rest of it at $180,000. You know that the $20,000 is 10 % of the $200,000 house value which means you’ll pay 2.4% of the mortgage value as a default insurance premium. So $180,000 mortgage x 2.4% insurance premium = $4320 insurance premium.
The end result is that you’ll pay $4320 to the insurance company so you can secure your mortgage. Generally speaking, the larger your down payment, the less you’ll pay to CMHC.
How do you pay for CMHC insurance?
Unlike the closing fees, like lawyer costs and land transfer tax, your CMHC insurance is rolled into your mortgage and paid over the duration of your mortgage. So whenever you prequalify for a mortgage, understand that you will need to include whatever the insurance premium will be into your loan calculations.