Mortgage loan insurance is a type of coverage that makes home ownership possible in Canada. It shields lenders in the event that borrowers default on their loans, and may also cover payments in case of death or disability.
Canada Mortgage and Housing Corporation (CMHC) is the nation’s leading mortgage insurer. However, you have other private options like Canada Guaranty or Sagen that provide coverage for various loan types like self-employed mortgages, second mortgages, investment properties, as well as those with borrowed down payments.
CMHC Mortgage Insurance Premiums
Mortgage default insurance (MCH) premiums are a one-time fee paid to the lender that ensures you receive coverage in case of default. They can range from 0.60% up to 4.0% of your total mortgage amount depending on factors like credit score, loan-to-value ratio and purchase price of your home. Your CMHC premium cost will depend on these same factors as well.
CMHC’s Mortgage Calculator makes calculating your CMHC mortgage insurance premium a breeze. It also outlines other requirements such as maximum amortization period, credit score and minimum down payment amount with ease.
To be eligible for mortgage loan insurance from the CMHC, you must make a down payment of at least 20%. This requirement has been mandated by the federal government in order to make buying homes simpler for individuals.
High-ratio mortgages, or those with a down payment of less than 20%, are seen by lenders as higher risks. That’s why it’s essential to secure your mortgage with insurance.
The Government of Canada, through the Office of the Superintendent of Financial Institutions (OSFI), requires all mortgages with a down payment of less than 20% to be insured by mortgage default insurance. CMHC is the most common provider in Canada but you have other options such as Canada Guaranty or Sagen depending on your individual needs.
Who Can Benefit From Mortgage Default Insurance?
In Canada, homeowners with down payments of less than 20% must purchase mortgage default insurance in order to be approved for high-ratio mortgages. Without it, your lender may require that you pay PMI (private mortgage insurance), which could add an extra expense onto your monthly payment.
Why Use CMHC’s Mortgage Insurance?
CMHC provides mortgage insurance as part of their mandate to make home ownership more accessible for Canadians. The program can be particularly advantageous to first-time homebuyers who may not have much savings to put down on their first property. With CMHC, first-time buyers won’t have to worry about being turned down for a home purchase.
By decreasing their interest rate, CMHC mortgage insurance makes it easier for borrowers with limited income to purchase their first home and build equity. Not only will CMHC’s mortgage insurance reduce your monthly payments, but using more of your monthly income towards paying off the mortgage allows for faster equity building opportunities.
