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What is CMHC Mortgage Insurance?

April05
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The CMHC (Canada Mortgage Housing insurance) is responsible for providing Canadian mortgage loan insurance which is then offered to potential buyers. The down payment for the loan can vary anywhere from 20% to 15%.

This particular type of Canadian mortgage protects the lender since it guarantees that it will not lose funds on its high ratio mortgage.

Lenders generally ask for mortgage loan insurance after buyers have made a down payment that is less than 20% of the actual purchase price of a home. This is how this type of loan protects lenders if a buyer happens to default on a mortgage. On the other hand CMHC mortgage loan insurance also allows potential homeowners the chance to pay a down payment that is as low as 5%.

How to Obtain it

Lenders will have to pay an insurance premium in order to obtain CMHC mortgage insurance. This is when they pass on the cost to you, the buyer. The payable premium is based on the actual purchase price of the mortgage and can be paid in the form of a lump sum. The sum can also be included in the monthly payments. 

Let’s see how much it will cost you –

  • A down payment that is 15% to less than 20% will require  an insurance premium of 1.75%
  • A down payment of 5% to less than 10% will require an insurance premium of 2.75%
  • A down payment  of 10% to 15% will require an insurance premium of 2.00%

The CMHC Improvement Program

Buyers can also utilize the CMHC Improvement program. Also known as the Purchase Plus Improvements program it provides buyers the chance to borrow up to 10% of an as-improved value of a home. This can be put towards the costs of any renovations that will be included in the loan amount of their mortgage.

This is convenient for first time home buyers to say the least. Such buyers usually have to resort to smaller down payments. This makes it impossible for them to pay for any renovations that they would want to deal with as soon as they move in and put some money aside for down payments.

How it Works

Borrowers are required to get a quote from a contractor before closing on a home. The quote in question will then be submitted to a lender and the CMHC for approval. However you would have to agree to let a contractor inspect the home by adding your consent in the Agreement to Purchase. The contractor will calculate the work and the costs that are related to it before coming up with an estimate.  The amount is added to the mortgage loan as soon as the lender and CMHC approve it.

The amount will then be given to your lawyer in the form of an advance payment. Your lawyer will hold onto it till the renovations are done with. The improvement amount on your Canadian mortgage  home will be released once the lender authorizes your lawyer to do so.

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