September 4, 2024

Everything you need to know about CMHC mortgage loan insurance

With so many steps involved in buying a home, today’s real estate market can be overwhelming for new buyers. If you are buying a home and your down payment is less than 20%, mortgage loan insurance from the Canada Mortgage and Housing Corporation (CMHC) can be a helpful tool. Read on to learn more about mortgage loan insurance.

Protected house

What is mortgage loan insurance?

Mortgage loan insurance, also called mortgage loan protection insurance, provides protection for lenders in the event that you are unable to make your mortgage payments and is mandatory when your down payment is less than 20%. As the future owner, you still have to make a minimum down payment depending on the price of the house you want to buy.

For a home that is $500,000 or less, the minimum down payment is 5%.
For a home that is $500,000 or more, the minimum down payment is 5% for the first $500,000, and 10% for the rest.

Buying a home is an investment—probably one of the biggest you’ll make in your life. Find out how much you need to save for the down payment.

	Tips and tricks Note that CMHC mortgage loan insurance is not available for the purchase of a home that is $1,000,000 or more.

Other types of insurance you can get when buying a property

Many people confuse the various types of insurance required when buying a property. Make sure you understand the differences between mortgage loan insurance, mortgage life insurance and home insurance, as each plays a distinct role in protecting your investment.

Mortgage life insurance: As a mortgage borrower, you can take out mortgage life insurance at the same time as your mortgage loan. Your lender offers this type of insurance as a way to protect you and your family in the event of your death. With mortgage life insurance, your mortgage will be repaid in full or in part if you die.

	Tips and tricks Don’t confuse personal life insurance with mortgage life insurance , which are two different things. Personal life insurance is not tied to your mortgage, so the beneficiaries can spend it as they see fit, while mortgage life insurance can only be used to repay the loan in the event of the death of the insured person.

Home insurance: Home insurance protects your home and property in the event of a disaster (fire, flood, water damage, natural disaster or burglary). Although it is extremely important, home insurance is not mandatory in Quebec. Think about how relieved you would be to have a home insurance policy if your new property was lost to a fire. There are several types of insurance, so be sure to shop around!

Who offers mortgage loan insurance?

Of all mortgage loan insurers, CMHC is the most well known. CMHC offers financing solutions to lenders as well as reliable access to mortgage financing. Above all, Canada Mortgage and Housing Corporation contributes to the Canadian housing system by ensuring that it functions properly.

Other lesser-known providers in Quebec also offer mortgage loan protection insurance: Sagen (formerly Genworth Canada) and Canada Guaranty Mortgage Insurance Company. These two private companies offer the same kind of premium as CMHC but for different niches (self-employed workers, people who own more than one house, etc.).

How does CMHC mortgage loan protection insurance work?

To be eligible for mortgage loan protection insurance, certain requirements must be met. For owner-occupants, the house must be in Canada.

Ideally, your monthly housing costs, which include repayment of the borrowed capital, interest, taxes and electricity, should not exceed 32% of your gross income. Similarly, your total debt should not exceed 40% of your gross income.

Don’t forget about closing fees (transfer tax, notary and legal fees, taxes), which sometimes come as a surprise to new buyers.

It’s important to do the math before embarking on this adventure.

	Tips and tricks Did you know that you can get a refund of up to 25% of your premium if you buy an energy-efficient home with a CMHM-insured mortgage loan?

Advantages and disadvantages of mortgage loan insurance

Among other things, CMHC mortgage loan insurance helps stabilize the housing market in Canada when there is an economic downturn.

Saving up for a 20% down payment can be difficult in today’s economy. The main benefit of mortgage loan insurance for the future owner is being able to get a loan for up to 95% of a property’s purchase price. With CMHC, a down payment of only 5% is required, which makes property more accessible.

When you take out CMHC mortgage loan insurance, you also get better mortgage terms, such as a lower interest rate. This can make a huge difference when it comes to monthly payments!

Of course, there are also some drawbacks. Mortgage insurance premiums come at a price and will increase your monthly payments, which are probably already high if you chose a 5% down payment.

In addition, only putting down 5% means that the net worth of your home stays lower than if you had a bigger down payment. And remember that premiums are subject to QST, so you will pay tax on the insurance premiums.

To make an informed decision, it’s important to discuss things with your mortgage advisor, who will be able to answer all your questions and help you think through various options.

Can anyone get mortgage insurance?

One of the CMHC eligibility criteria for mortgage loan protection insurance is that at least one of the borrowers has a credit rating of 600 or higher. Without good credit, buying a property could be difficult, if not impossible.

Other key eligibility criteria are as follows:

Be a Canadian citizen or permanent resident in Canada or non-permanent resident authorized to work in Canada;
Maximum loan-to-value ratio of 95% (see table below);
Minimum down payment of 5% that can come from the borrower’s savings, the sale of a property or a non-refundable gift from a close relative, for example;
Purchase price under $1,000,000;
Solvency of the borrower (credit rating mentioned above);
Maximum gross debt service ratio of 39% and total debt service ratio of 44%.

How much does CMHC mortgage loan insurance cost?

Calculating your insurance premium involves a percentage of the total amount of the loan, or the additional amount of the loan that has been transferred, depending on the down payment.

Here is a table that explains how the premium is calculated based on the value of your loan.

Percentage of CMHC premium over loan value
Loan value	Premium on total loan	Premium on additional amount of transferred loan
65% or less	0.60%	0.60%
65.01–75%	1.70%	5.90%
75.01–80%	2.40%	6.05%
80.01–85%	2.80%	6.20%
85.01–90%	3.10%	6.25%
90.01–95%	4.00%	6.30%

The following example is based on the above table.

Valérie and Jean-François bought their first home for $500,000. They saved up $25,000 for the down payment, or 5% of the total loan. They will therefore have to borrow 95% (loan value) of $500,000 and pay 4% (premium on the total loan) to CMHC for the mortgage loan insurance cost, which amounts to $19,000.

If you would like to use your own information to do the calculation, the CMHC home loan insurance calculator lets you compare rates, payment frequency and amortization for your loan. It will show you the best options for your mortgage, and you’ll be able to see the mortgage loan insurance cost. Do the math!

How do you repay your CMHC premium?

The insurance premium payable to the CMHC can be included in the mortgage and therefore in your mortgage payments. In fact, the lender pays the CMHC premium for you, then requires you to repay it when you make your mortgage payments. The premium can also be paid in full when you acquire your new property.

Want to pay off your mortgage faster? It’s possible, and there are various ways to do it that won’t compromise your quality of life.

While you may want to repay your mortgage faster, you are bound by a contract that may include restrictions regarding early repayment of both your mortgage and the CMHC premium. It is best to discuss your situation with your mortgage advisor.

How can mortgage loan insurance costs be reduced?

If you can make a down payment of 20%, you will avoid having to pay for CMHC mortgage loan insurance, as you will not need it.

With a 10% down payment, you can reduce the premium for this insurance, which is still an interesting option and deserves some thought.

Even if you are not ready to buy a house right away, it’s good to get informed about the different steps involved in becoming a homeowner.

Will this be the first time you buy a property? There are several home ownership programs, including subsidies and tax credits, to help first-time buyers.

Make borrowing easier with mortgage loan insurance

Buying a home is something you’ll probably only do a few times in your life. Visit Centris.ca to find the right home that meets your needs. You can use the various filters, map search and gallery to help you find the property you’re looking for.

Frequently asked questions (FAQ)

1. Can we transfer our mortgage loan insurance if we move?

Absolutely! If you plan to move, you can transfer your mortgage as well as your mortgage loan insurance. But before you put up a for-sale sign, talk to your mortgage advisor to check the conditions!

2. Can CMHC insurance be cancelled?

As you now know, mortgage loan insurance is mandatory if the loan is for more than 80% of the property price (in other words, if your down payment is less than 20%). However, you can cancel your CMHC insurance once you have 80% or less left to repay on your loan.

3. Is mortgage loan insurance required even with a 20% down payment?

Even with a 20% down payment, your lender might require you to get mortgage insurance. This is often the case when the buyer is self-employed or has a poor credit history.

4. Who should I contact to get mortgage insurance?

When you get your loan for the new home, your lender will apply for mortgage loan insurance from CMHC.

5. Does mortgage loan insurance only apply to single-family homes?

No. CMHC mortgage loan insurance applies to different types of property, including duplexes, triplexes, condominiums, prefabricated homes, mobile homes, rental buildings and seniors’ residences. Consult your lender for more details.

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