What is CMHC Insurance?

by | Nov 2, 2020 | Personal Finances | 0 comments

Canada Mortgage and Housing Corporation (CMHC) is a government department that acts as the national housing agency. One of their main functions is offering mortgage default insurance to Canadians applying for mortgages.

There are two other mortgage insurance providers in Canada; Genworth Canada (recently renamed Sagen) and Canada Guaranty are publicly traded companies. Many of the mortgage programs supported by the three insurers are the same, but few differences. Not all mortgage contracts qualify or require a default insurance policy.

Mortgage default insurance covers the lender if the borrower does not pay their mortgage. In this instance, the Insurance company would pay out the current balance to the lender. The Insurer would go after the borrower in civil court for the balance. The insurance protects the lender and, ultimately, the housing market. 

How is CMHC insurance calculated?

Mortgage insurance premiums depend on the amount of down payment. The insurance premiums are set at 5%, 10%, and 15% and progressively decrease with more down payment.

The total mortgage default premium is added to the mortgage balance and spread out over the amortization of the mortgage contract. Therefore, buyers are not required to pay the insurance premium as part of their closing costs. The mortgage default insurance is HST applicable and paid as part of the closing costs.

For down payments of 20% or more, mortgage insurance is not mandatory. There are some exceptions to this rule based on employment type and property type, so it’s best to connect with us for a quick chat. 

Is CMHC insurance refundable?

Mortgage default insurance is not refundable. Borrowers can, however, port their policies to a new property which typically happens when buyers are moving up the property ladder into a higher-priced home. A top-up premium is required for the difference in price between the original property and the new property value. There are a few other nuances to porting your existing policy to a new property. Your mortgage professional can walk you through the process. Certain rebates are available for purchases of energy-efficient homes or specific energy-saving improvements. 

How do I get rid of CMHC insurance?

Mortgage default insurance is mandatory for home purchases with less than a 20% down payment. Home purchases with a 20% or higher down payment do not require default insurance. Mortgage transactions for property values higher than $1M and mortgage refinance do not qualify for default insurance. 

How long do you have to pay CMHC insurance?

The default insurance premium is added to the mortgage balance and paid for across the amortization of the mortgage. If borrowers renew with their current lender, the contract continues to be paid based on the ending balance of the first mortgage. Therefore, without any changes to the mortgage amount (i.e. refinancing, moving to a new property), the CMHC insurance amount would be paid at the end of the original amortization period. The good news is your mortgage will be paid off!

For more information or to book a no-obligation consultation, don’t hesitate to get in touch with [email protected]

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