In most cases, the hardest part of purchasing a home, especially for first time home buyers, is saving enough money for the down payment. If you are finding it difficult to save a down payment of 20% it’s unlikely that you would ever be able to purchase a home. That’s where CMHC mortgage loan insurance plays a key role.
Canada Mortgage and Housing Corporation (CHMC) is Canada’s national housing agency. In 1946 it was established as a government-owned corporation to address Canada’s post-war housing shortage. CMHC works to enhance Canada’s housing finance options, assist Canadians who cannot afford housing in the private market, improve building standards and housing construction, and provide policymakers with the information and analysis they need to sustain a vibrant housing market in Canada.
Mortgage loan insurance is required by law if your mortgage is more than 80% of the purchase price of your home. The lender makes all of the arrangements. Mortgage loan insurance protects the lender if you default on your mortgage. The mortgage loan insurance—CMHC and a private insurer offer it—pays back the lender. With the risk of losing their money removed, lenders have the confidence to make mortgage loans of up to 95% of the purchase price of your home.
The premium for mortgage loan insurance may be paid in cash when the loan is advanced, or the borrower may choose to add the premium to the mortgage loan principal amount and pay it off over the life of the mortgage. Most borrowers pay the premium off over the life of the mortgage. The amount of the CMHC Mortgage Insurance premium ranges between 0.50% and 7% depending upon how much of the purchase price/home value is financed with a mortgage loan. Premiums in Ontario and Quebec are subject to provincial sale tax which cannot be added to the mortgage amount.
CMHC offers mortgage loan insurance products on various property types including duplexes, condominiums, owner-occupied properties, manufactured or mobile homes, properties requiring renovations and much more. A CMHC insured mortgage provides you with down payment flexibilities – you can own your home with as little as 5% down payment. For those home buyers who have saved up a down payment, traditional mortgage loan insurance products require home buyers to provide the minimum down payment from their own resources, however gift down payments from immediate relatives are also acceptable. Additional sources of down payment are also available through CMHC’s Flex Down product. With Flex Down, homebuyers with a proven track record in managing their debt can provide the 5% down payment from a variety of sources, including borrowed funds or lender incentives, provided the funds are at arm’s length from and not tied to the purchase or sale of the property.
CMHC also offers mortgage insurance that helps homebuyers obtain a secured homeowner line of credit of up to 90% of the value of their principal residence, either at the time of purchase or if you want to refinance. The line of credit lets you draw funds up to your insured credit limit as often as you wish without the need to reapply and allows you the flexibility to pay as little as the monthly interest charges for a limited period of time. Full repayment is required within 25 years from the date the loan is insured.
Both new and resale homes are eligible for mortgage loan insurance, as long as the home is in Canada and it’s your principal residence. In addition, your total housing costs (including mortgage payments, property taxes, heating, annual site lease, and 50% of condominium fees if applicable) should not be more than 32% of your gross household income, and your total debt load (including your housing costs and other debts such as personal loans, car loans, and credit cards) should not exceed 40% of your gross household income. Other criteria may also apply and are subject to change. Please contact your mortgage agent to confirm availability and qualifying criteria.
CMHC Mortgage Insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
