The Canada Mortgage Housing Corporation (CMHC) provides mortgage loan insurance to lenders for home buyers with a down payment of less than 20%, to as low as 5%. However, this is not to protect the buyer, it is used to protect the lender. CMHC insurance guarantees the bank or credit union that it will not lose money on this high ratio mortgage.
It is the lender that technically pays this insurance premium, though they will pass the cost on to you. Many lenders will add this amount into the mortgage, so that you will not need to pay it immediately. so how much will CMHC insurance cost you? Here are the three tiers for employed people with verifiable income:
- 15% to less than 20% down payment requires a standard insurance premium of 1.75%
- 10% to less than 15% down payment requires a standard insurance premium of 2.00%
- 5% to less than 10% down payment requires a standard insurance premium of 2.75%
There is also a premium paid on mortgages that are amortized over more than 25 years.
- Over 25 years, up to and including 30 years has an extended amortization surcharge of 0.2%
- Over 30 years, up to and including 35 years has an extended amortization surcharge of 0.4%
The CMHC has a program where you can recieve a 10% refund on your premiums and no surcharge on extended amortizations by purchasing an energy eficient home or renovating to make it more energy efficent.
While you would benefit from having a 20% down payment, in both interest and premiums saved, CMHC mortgage loan insurance serves a purpose by allowing people to buy a house with a smaller down payment. Being insured against loss, the bank is less concerned about the higher risk they take on, which allows the buyer to stop renting and start building equity in a home of their own.
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we bought our home when you needed 25% plus to not pay CHMC and it was tough. I’m glad they lowered it to 20%.
If it wasn’t for cmhc it would be extremely difficult to save up an adequate down payment if you also had to pay rent.
when do you stop paying the CHMC insurance?
Yak, you just pay it at the beginning of your mortgage. Technically it’s the one time, though it can be spread out over the length of your mortgage.
I just finished a massive garage which will increase the value of my property enough to drop the additional insurance. If this insurance was not available, I would not have this nice of a home. It is important to get out from under the insurance as soon as possible though.
There are still programs where you can purchase a home with no down payment. If you do the math, they are actually not a bad deal.
How do you compute the insurance premium for a refinance mortgage that borrows from the equity?
I’m not positive, but I believe the amount available to be borrowed also counts in your percentage. For example, if you have a mortgage for 50% and you want a HELOC for another 30%, then that counts at 80% since your debt level on the house could potentially be up to 80% the very next day.
Hello There,
Is there a good benefit that I can get to waive the CMHC Insurance since it is for the soul benifits of the lender not for the borrower which is myself. I just recently bought a property and the cost of CMHCI insurance is $16,300 Which I think is really high. I put a down payment of 10% which the mortgage broker told me to do so plus the transfer of property that cost me $16,200.Is there anybody there who can enlighten me or have the experience with all this process which I feel something in the process is wrong. Please advice or give your comment.
Thanks, and have a nice holiday!
Saving up to input a decent percentage of your down payment to get a better rate is a good idea for the long term of your mortgage as you will save more money overall due to the lowered insurance premium and it also shows the bank you are more committed to the mortgage.
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I don’t know why they put a surcharge on long mortgages. The additional interest should be more than enough over the long period.
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Having a large downpayment on a house only shows that you have either a VERY good job or someone who is willing to help you out. As a person who has an OK job but has to spend a huge percentage of that on rent to keep roof over her head, I find the banks viewpoint that a big downpayment somehow makes you more commited laughable. I would do almost anything to be able to get a house, but as a single parent with a child to provide for, the idea that I can somehow come up with 10% for a house in Edmonton with costs being around 200,000 is obscene. All I see are the rich looking out for the rich leaving the hard working poor like me out in the dust.
This is an informative read. CMHC has allowed people to purchase their own home sooner, without having to save the 20% down, which means they can pay off the mortgage at a younger age.