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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 to Sagen) and Canada Guaranty. These two companies are publicly traded entities. Many of the mortgage programs supported by the three insurers are the same, but there are a few differences. Not all mortgage contracts qualify or require a default insurance policy.

Mortgage default insurance covers he lender if the borrower does not pay their mortgage. In this instance, the Insurance company would pay out the current balance to the lender and 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 is calculated based on the amount of down payment on the property purchase. The premiums are a percentage of the total mortgage request. The rate 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 mortgage contract. Therefore, buyers are not required to pay the insurance premium as part of their closing costs. However, it should be noted that mortgage default insurance is HST applicable and the HST portion is not included in the mortgage amount and must be paid as part of the closing costs.
For down payments of 20% and greater, no mortgage insurance is required. 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. Borrower’s can however port their policies to a new property if the new property has less than 20% down payment. This typically happens when buyers are moving up the property ladder into a higher priced home. A top up portion 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 if an energy efficient home is purchased or certain energy saving improvements are made to the home.

 

How do I get rid of CMHC insurance?

It is legislatively mandated that mortgage default insurance is mandatory for any purchases with less than 20% down payment. Insurance is not required on a home refinance, for down payments of 20% or higher, and for property values higher than $1M.

 

How long do you have to pay CMHC insurance?

The default insurance premium is added to the mortgage balance and is 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 (most likely 25-years). The good news is – your mortgage would be paid off as well!

For more information or to book a no obligation consultation, please contact [email protected].