The Canadian Mortgage and Housing Corporation (CMHC) default mortgage insurance is a large topic. For this reason we will only examine the basics today as related to the potential cost associated with purchasing a home in Canada.
The Creation of The Canadian Mortgage and Housing Corporation (CMHC)
To begin, here is a bit of trivia…The Canadian Mortgage and Housing Corporation was formed January 1st, 1946. It’s purpose as described on Wikipedia is the following: “Canada Mortgage and Housing Corporation (CMHC) is a Crown Corporation of the Government of Canada. Its superseding agency was established after World War II, to help returning war veterans find housing. It has since expanded its mandate to assist housing for all Canadians. The organization’s primary goals are to provide mortgage liquidity, assist in affordable housing development, and provide unbiased research and advice to the Canadian government, and housing industry.
CMHC insurance, is mandatory in Canada for minimum down payments of 5% up to 19.99%. This is considered a high ratio mortgage. The default insurance protects lenders, in the event a borrower ever stops making payments and defaults on the mortgage loan. The amount of the insurance is tacked onto the mortgage amount and paid over the amortized life of the mortgage in most cases. With a down payment of 20% or more, CMHC default mortgage insurance is not required.
A helpful video by ratehub.ca describes how CMHC mortgage insurance is calculated…
The cost to home buyers for default insurance is 2.80% – 4.00% of the mortgage amount but it does allow Canadians, with low down payments to purchase a home. Without the default insurance, mortgage rates would be potentially higher because the risk would be higher. The risk of default is passed along to the mortgage insurer with this insurance.
Visit CMHC’s official site to learn what the general requirements are to qualify for CMHC Mortgage Insurance…
I hope this helps shed some light on a government entity that has changed accessibility of home ownership in Canada. Like anything, it comes with a price tag but… if immediate home ownership is on your bucket list and you don’t have 20% of the purchase price as a down payment but you meet requirements in all other ways, this option may be what you need. Before you begin shopping for the house of your dreams know your budget!
Visit your Mortgage Broker/Lender and determine if you qualify to purchase and how much you qualify for…ask for a letter of “pre-approval”
If you don’t qualify for CMHC your Mortgage Broker may have other insurance options so don’t get discouraged too quickly! You are on a quest to find out where you stand and you do have more options than you might realize. If you are turned down by one bank or mortgage company understand that you can shop around. If it appears that there is a consensus after a few tries, you now know what you need to do. You can focus on your goal more clearly. Knowledge is power and you are now in a more powerful place of making your dream come true. You are on your way! One step at a time…
Are you a first time home buyer?
A future topic related to CMHC is the a new program coming into effect September 2nd, 2019. Here is a teaser article from CMHC to get your juices flowing:
Until next time, keep the dream alive, one step at a time!
After all, life is a journey, not a destination.