What is CMHC mortgage insurance?

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A mortgage loan provides you with the money you need to buy your home. Depending on the amount of money you have available for the purchase, you may be required to take out mortgage default insurance. The Canada Mortgage and Housing Corporation CMHC is the main institution that can offer you this insurance. Find out more about CMHC mortgage insurance from your broker.

Who is CMHC?

CMHC has a history of over 75 years. Its beginnings date back to the aftermath of the Second World War. Its objectives at the time were to help veterans solve their housing problems. Throughout its evolution, its vocation has remained largely the same, namely to work in the housing sector, but its missions now extend to most of the Canadian population.

Although it is an independent company, CMHC now operates under the aegis of the Canadian government. One of the main objectives of this Crown corporation is to facilitate access to housing for all. How does CMHC help mortgage borrowers? CMHC’s benefits reduce the cost of mortgages through the provision of insurance to borrowers.

Known for its mortgage insurance for borrowers. In Canada, the establishment is one of the most experienced of the three insurers that provide mortgage insurance to borrowers.

With CMHC mortgage insurance, the benefits promised to borrowers are numerous, starting with the interest rate of their credit. In many cases, an insured mortgage has a lower interest rate than one that is not protected by insurance.

When do I need mortgage insurance?

A mortgage loan allows a borrower to finance a real estate project. This financing provides only a portion of the cash needed to purchase a property.

The borrower must personally participate in the purchase through a down payment. In Canada, the mortgage loan can finance up to 95% of the project, with the remaining 5% coming from the down payment made by the borrower.

When the down payment is between 5% and 20% of the value of the mortgage, mortgage loan insurance becomes mandatory. For a $450,000 mortgage, for example, there are two possible scenarios:

the borrower’s down payment is 20% or more, or a minimum of $90,000, no mortgage insurance is required;
the borrower’s down payment is between $22,500 and $90,000, or between 5% and 20%: the borrower must approach CMHC to purchase mortgage insurance.

Who can provide mortgage insurance?

CMHC is the primary provider of mortgage insurance to Canadian borrowers. Two other private sector institutions also provide equivalent mortgage insurance offerings:

Sagen, formerly known as Genworth Financial;
and Canada Guaranty.

CMHC eligibility requirements

Several conditions must be met to obtain mortgage insurance from CMHC. Some general criteria must first be met:

the mortgage financing is taken out for the purchase or renovation of a property located in Canada;
the maximum amount of the mortgage loan must be less than $1,000,000
the production of a personal down payment of at least 5% of the amount of the property is required if its value is less than or equal to $500,000. When the price of the property exceeds $500,000, the down payment amount is the sum of 5% of the first $500,000 and 10% of the excess;

Borrowers planning to purchase CMHC loan insurance must furthermore verify several conditions regarding their resources and the impact of the mortgage on their income:

have a maximum gross debt amortization ratio of 39% ;
have a maximum total amortization ratio of 44%;
have a minimum credit score of 600.

These conditions are not exhaustive and the institution reserves the right to use other methods to establish the creditworthiness of mortgage applicants. These criteria apply only to the purchase of mortgage insurance from CMHC. For the other two insurance agencies, the conditions may vary and may be more flexible.

Who benefits from this insurance?

Mortgage insurance is put in place to repay the mortgage balance to the lending institution in the event of the borrower’s default. You pay the insurance premium as the insured even though you do not receive any compensation in the event of an inability to repay.

The mortgage insurance thus benefits the mortgage lender. If the borrower defaults, the lending institution will foreclose on the mortgaged property and put it up for sale to recover the balance of the loan. In the event that the funds received from the sale are insufficient to pay off the balance in full, CMHC assumes its obligation and pays the lending institution the difference.

The cost of this insurance

The borrower is responsible for paying the cost of mortgage loan insurance. At CMHC, the cost of insurance depends on the size of the down payment. The amount of the CMHC mortgage loan insurance premium varies from 0.60% to 6.30% of the loan value, depending on the proportion of the down payment made by the borrower.

The smaller the down payment, the higher the premium. For example, for a mortgage with a down payment between 10 and 14.99%, a mortgage insurance premium of approximately 3.10% of the total loan amount is charged.

However, the price of mortgage insurance decreases as the down payment increases. For example, if the borrower contributes 20 to 24.99% of the total amount of the mortgage with his or her own money, the price of mortgage insurance drops to 2.40% of the total amount borrowed. The cost of SHCL mortgage insurance is available on the company’s website.