What is CMHC Housing Mortgage Insurance?
What is CMHC Mortgage Loan Insurance?
The Canada Mortgage and Housing Corporation (CMHC) is a federal Crown corporation that provides mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research to Canadians.
CMHC mortgage loan insurance protects lenders against mortgage default by providing mortgage loan insurance on residential properties with high loan-to-value ratios. The CMHC insurance allows lenders to offer higher loan-to-value ratios and extend financing to borrowers who would not otherwise qualify for a conventional mortgage.
Borrowers with a down payment of less than 20% of the purchase price of their home are required to purchase CMHC mortgage loan insurance.
The premium for CMHC mortgage loan insurance is based on a percentage of the loan and is added to your mortgage principal.
How Does CMHC Mortgage Loan Insurance Work?
CMHC mortgage loan insurance helps make it possible for you to own your home by protecting your lender against default on your mortgage in the event that you are unable to repay it.
When you buy a home with a down payment of less than 20 percent, your lender will require you to purchase CMHC mortgage loan insurance. You will need to pay for the insurance premium and it will be added to your mortgage loan.
Your lender will pay CMHC if you default on your mortgage and CMHC in turn, will reimburse the lender. In the event that CMHC is unable to recover all of the money it has paid to your lender, you may be required to repay any shortfall.
You are also required to sign taking full responsibility for the debt should you default on your payments.
Who Needs CMHC Mortgage Loan Insurance?
If you’re buying a home with a down payment of less than 20% of the purchase price, you’ll need mortgage loan insurance. The mortgage loan insurance premium is calculated as a percentage of the loan and is added to your mortgage.
If you have a high-ratio mortgage and default on your loan, CMHC will reimburse the lender for a portion of their losses. This protects lenders and gives them the confidence to provide higher-risk loans, and high-ratio mortgages, to home buyers with smaller down payments.
How Much Does CMHC Mortgage Loan Insurance Cost?
While the premium for CMHC mortgage loan insurance varies depending on the amount you are borrowing and the down payment you are making, it is typically between 2.8% and 4% of the total loan amount. This premium can be added to your mortgage loan amount or paid in cash.
How to Get CMHC Mortgage Loan Insurance
To qualify for a CMHC Mortgage Loan Insurance policy, your lender must apply on your behalf and pay the premium. As the homeowner, you pay for the insurance through your mortgage payments, and it protects your lender in case you can’t repay your loan.
If you’re buying a home with a down payment of less than 20 percent of the purchase price, you’ll need CMHC insurance. The minimum down payment is 5 percent if the home costs less than $500,000; 10 percent if it costs between $500,000 and $999,999; or 20 percent if it costs $1 million or more.
CMHC Mortgage Loan Insurance FAQs
CMHC mortgage loan insurance protects lenders against mortgage default by contributing to the payment of eligible claims. When a borrower with CMHC mortgage loan insurance stops making their mortgage payments, CMHC will reimburse the lender for a portion of the outstanding mortgage.
Lenders are required to obtain CMHC mortgage loan insurance for homebuyers with a down payment of less than 20%, to help protect them against losses in the event the borrower is unable to make their mortgage payments and defaults on their loan.
A CMHC-insured mortgage may have a lower interest rate than a conventional uninsured mortgage, making it more affordable for homebuyers. In addition, borrowers with a smaller down payment may be able to qualify for a larger mortgage amount with CMHC-insured financing than they would through conventional financing.
##FAQs
What is CMHC?
The Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown Corporation that provides default mortgage insurance to Canadian lenders. Mortgage insurance protects lenders against losses in the event that a borrower is unable to make their mortgage payments and defaults on their loan.
What are the benefits of CMHC-insured financing?
A CMHC-insured mortgage may have a lower interest rate than an uninsured conventional mortgage, making it more affordable for homebuyers. In addition, borrowers with a smaller down payment may be able to qualify for a larger mortgage amount with CMHC-insured financing than they would through conventional financing.
How do I get CMHC-insured financing?
In order to get CMHC-insured financing, you will need to work with a participating lender. Not all lenders offer CMHC-insured mortgages, so it’s important to shop around and compare options before you choose a lender.
How much does CMHC mortgage loan insurance cost?
The premium for your CMHC mortgage loan insurance will depend on several factors, including the size of your down payment and the purchase price of your home. The premium can be added to your monthly mortgage payment or paid upfront in a lump sum.
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