CMHC mortgage insurance: Review, calculator, rates 2024
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Before 1954, buying a home in Canada was tough, with buyers needing to put down at least 50% of the home's price. This made it hard for many families to buy a home. Then came CMHC mortgage insurance.
CMHC mortgage insurance has made homeownership more attainable in Canada, reducing the need for large down payments from 50% to as low as 5%. So, if you're aiming to buy a home but the down payment seems daunting, CMHC mortgage insurance could be your key to unlocking the door to homeownership.
This comprehensive guide on CMHC mortgage insurance breaks down everything you need to know from the premiums and eligibility to the rules and regulations governing coverage.
CMHC Mortgage Insurance: 5 Key Takeaways
- CMHC mortgage insurance is mandatory for all home buyers who buy a property with <20% down payment
- Premium rates are calculated on the outstanding mortgage principal
- CMHC mortgage insurance, aka default insurance, is not the same as mortgage protection insurance
- CMHC mortgage insurance makes homeownership more accessible
- Use the online CMHC Mortgage Insurance calculator to get an estimate
Our CMHC mortgage insurance review: A Necessity for many Canadians
Since CMHC mortgage insurance is a prerequisite for homeowners making a down payment of less than 20% on their mortgage and protects the lender of the mortgage as opposed to the homeowner themselves, it is hard to review the cover as good or bad. It just is.
Furthermore, most homeowners don’t get to choose between CMHC mortgage insurance or one of the other two providers (Sagen, formerly Genworth, or Canada Guaranty) as the mortgage default insurance is organized by the mortgage provider, as well.
However, despite the additional cost of CMHC mortgage insurance when looking to buy a house with a minimal down payment, the overall reason for mortgage default insurance is positive. Not only does it help stabilize the housing market and keep interest rates low, but it also ensures the accessibility to mortgages for those struggling to acquire larger down payments.
Expert advice
Remember that CMHC mortgage insurance does not cover you, the homeowner if you are unable to pay your mortgage. It does not replace your mortgage payments nor will it stop you from defaulting on your mortgage. It simply covers the financial institution and mortgage lender in case you cannot pay. To cover you, you could explore options like Scotia Bank mortgage insurance, Cumis insurance, etc.
Multiple mortgage protection insurance policies do offer you the best coverage if you find yourself in a position where you cannot pay your mortgage. Get a free mortgage insurance quote using HelloSafe’s mortgage insurance quote tool below.
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Pros of CMHC Mortgage Insurance
- Enables homeownership: CMHC mortgage insurance allows buyers to purchase a house sooner rather than later with a minimal down payment of 5%, making homeownership more accessible.
- Flexible payment option: You can choose to pay the mortgage insurance premium in full or spread the cost out over the mortgage’s lifetime.
- Promotes market stability: Since CMHC mortgage default insurance provides security to the lender, it helps stabilize the housing market by ensuring a continuous supply of funds for mortgages during times of economic stress.
- Promotes competitive rates: By insuring mortgages, the risk for lenders decreases, meaning that interest rates are kept lower when compared to uninsured mortgages.
- Refinancing Options: Homeowners with CMHC insurance can potentially refinance up to 80% of their home’s value, providing an opportunity to access equity.
Cons of CMHC Mortgage Insurance
- Additional cost: The mortgage insurance represents an additional cost when buying a house that can represent a significant amount for homebuyers, especially new homeowners.
- Further interest costs: If not paid upfront, the mortgage default insurance premium accrues interest alongside the mortgage that the homeowner will have to pay.
- Premiums aren’t refundable: Once the insurance premium is paid, it is generally not refundable, even if the mortgage is paid off early or the property is sold.
- Loan limits: CMHC mortgage insurance has an upper limit of a loan that it will insure and mortgage default insurance is not available for houses priced over $1,000,000.
- Coverage: It does not provide any coverage of the property itself, or the homeowner. The coverage only protects the mortgage lender in case the homeowner defaults on payments.
What is CMHC mortgage insurance?
CMHC mortgage insurance is provided by the Canada Mortgage and Housing Corporation (CMHC) which is Canada’s national housing agency. The organization explores strategies to fund affordable housing throughout Canada in addition to providing CMHC mortgage insurance, tips, tricks, and information to homeowners.
Specifically, CMHC mortgage insurance is a form of insurance coverage that provides lenders with a safety net if the homeowner fails to pay their mortgage. CMHC mortgage insurance is mandatory for all Canadian homebuyers who make a down payment of less than 20% of the house price.
It has been put in place to stabilize the housing market in Canada while also working to keep interest rates low and increasing accessibility to homeownership.
Since CMHC mortgage insurance adds cost to homebuyers it may seem counterintuitive to indicate that it increases accessibility to homeownership. However, by ensuring that all lenders are insured against the potential default of owners with smaller down payments, the lenders themselves are incentivized to offer lower mortgage rates than they otherwise would.
What is High Ratio Mortgage Insurance?
CMHC (Canada Mortgage and Housing Corporation) mortgage insurance and high ratio mortgage insurance refer to the same type of insurance in Canada. CMHC mortgage insurance is a form of high-ratio mortgage insurance, which is required for homebuyers who make a down payment of less than 20% of the purchase price of a home. Read our full guide on High Ratio Mortgage Insurance.
How does CMHC mortgage insurance work?
CMHC mortgage insurance works by providing lenders with a guarantee on their mortgages should a homeowner defaults on their payments.
If a homeowner does default on their mortgage payments, then the lender can claim on the default insurance and the borrower could lose their home. While the insurance does cover the lender and not the homeowner, the mortgage insurance premiums are paid by the purchaser.
Specific stipulations regarding the minimum down payment also exist and have to be met by the buyer to qualify for mortgage insurance, aka mortgage default insurance, and can be seen in the table below.
| Home’s purchase price | Minimum down payment |
|---|---|
| $0 to $500,000 | 5% |
| $500,000 to $999,999 | 5% on the first $500,000 and 10% on the excess |
| over $1,000,000 | CMHC mortgage insurance not available |
How much is CMHC mortgage insurance in 2024?
CMHC mortgage insurance rates vary on the size of your down payment and are calculated as a percentage of your mortgage principal. The mortgage principal is the remaining balance of the mortgage that has been borrowed from the lender after the deposit is made. CMHC’s mortgage insurance rates are highlighted in the table below.
| Down payment on principal | CMHC insurance rate calculated on outstanding mortgage principal |
|---|---|
| 5% to 9.99% | 4% |
| 10% to 14.99% | 3.1% |
| 15% to 19.99% | 2.8% |
For example
If you buy a home for $385,000 with a down payment of $30,800 (8%), your CMHC mortgage insurance costs will be 4% on the remaining $354,200 of your loan - which is $14,168.
If, however, you bought the same $385,000 home with a 10% down payment of $38,500, your rate would drop to 3.1%, bringing your mortgage insurance premium down to $10,741.50.
You can also explore what top mortgage life insurance plans in Canada offer for your unique needs right here. Use our free tool below to compare the best mortgage insurance quotes. It's free, instant, and completely online.
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Additional costs
In addition to the premiums outlined above, CMHC mortgage insurance costs may also include interest payments and result in sales tax.
Interest charges may be added to your mortgage default insurance if you are unable to pay the full fee upfront, as the premiums will be added to your mortgage and accrue interest at the same rate.
Additionally, you may have to pay a sales tax on CMHC mortgage insurance premiums if the house you are purchasing is located in the provinces of Quebec, Saskatchewan, or Ontario.
CMHC mortgage insurance discount
While these additional costs to the insurance premium can leave a sour taste in your mouth, a few government grants exist that may help you lower your overall costs. For example, if your home-to-be is considered energy-efficient, you could get up to a 25% refund on your mortgage insurance premiums.
How to use the CMHC mortgage insurance calculator?
To use a CMHC mortgage insurance calculator here, follow these simple steps:
- Enter the Purchase Price: Input the total cost of the home you plan to buy.
- Specify Your Down Payment: Indicate the amount you're putting down. Remember, if it's less than 20% of the purchase price, you'll need mortgage insurance.
- Set the Amortization Period: Choose the number of years you plan to spread your mortgage payments over, typically up to 25 years.
- Calculate: The calculator will automatically factor in the mortgage insurance premium if your down payment is under 20% and the purchase price is below $1,000,000.
This tool helps compare different mortgage options, including rates, payment frequency, and amortization, to find the best choice for you.
What are CMHC mortgage insurance rules?
Although default insurance is mandatory for certain individuals buying homes, borrowers still have to adhere to strict CMHC rules and regulations that stipulate eligibility and coverage.
These rules and regulations include:
- The homeowner must live in and use the house as their primary residence
- The buyer has to keep the property in good condition and not do anything that may decrease its value
- The house has to be located in Canada
- The minimum down payment is reached and the down payment source cannot be from borrowed funds
- Your overall debt should not be higher than 40% of your household income
- The homeowner needs to have a minimum credit score of 600
What is the difference between mortgage insurance and mortgage protection insurance?
Mortgage default insurance, such as CMHC mortgage insurance, is often confused with a similar private product called mortgage protection insurance. The former is government mandatory insurance if you purchase a property with a <20% down payment, while the latter is private insurance that will cover outstanding mortgage payments if the insured is unable to work.
The table below includes several other distinctions between the two insurance policies.
| Questions | CMHC Mortgage Insurance | Mortgage Protection Insurance |
|---|---|---|
| Who organizes the insurance? | The mortgage provider (lender) | Private individuals |
| Who is covered by the insurance? | The mortgage provider (lender) | The insured individual |
| Who pays for the insurance? | The borrower/homeowner in a one-time lump sum or by including the cost on the mortgage principal | The insured individual in monthly premium installments |
| What does the insurance cover? | Covers the lender in the event that the homeowner defaults on their mortgage payments | Covers the private individual by continuing to pay the mortgage if the insured is no longer able to work |
If you are worried about someday not being able to make your mortgage payments, whether it be due to death, injury, or illness, then you should consider mortgage protection insurance. You can use the comparison tool below to quickly compare and review some of the best mortgage insurance policies in Canada.
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Can I cancel CMHC mortgage insurance?
In short, no, you cannot cancel your CMHC mortgage insurance. It is a mandatory insurance that starts when you purchase your property with a down payment of less than 20% and it can also not be refunded if the property is sold.
Furthermore, if the CMHC premiums were added to your mortgage instead of being paid upfront, you are still liable for the CMHC premium in full and the remainder will be collected upon sale of your property.
