PROPERTYSPARK ARTICLE

Everything You Need to Know About CMHC Mortgage Insurance

What is CMHC Mortgage Insurance?

CMHC mortgage insurance loans are derelicts of Canadian Banks that give a guarantee towards the mortgage being issued to buyers who offer less than twenty percent down payment. What does this mean for lenders? In case of a borrower defaulting, it means losses will not be experienced by the lender.

As a result, they can get higher ratios and lower interest income from mortgages because the lender has less risk exposure. Every month, CMHC receives premiums which cover its risk.

This insurance is applied by the Government of Canada and it makes home financing even cheaper. CMHC is the largest mortgage insurer in the country.

Who Needs CMHC Mortgage Insurance?

By definition, high ratio refers to the fixed percentage of a mortgage’s value (the house being bought) . If you cannot make a downpayment which is twenty percent of the sales price of the house you want to buy, this means that high-ratio borrowing will apply and thus a mortgage insurance will be required.

CMHC mortgage insurance offers potential buyers an opportunity to obtain approval with a down payment of as low as 5 percent. It increases the chances for first-time buyers or anyone with no significant savings but can pay monthly mortgage installments.

What are the Homebuyers Advantages?

CMHC mortgage insurance provides several advantages:

• Only 5% down payment required
• Improved buying power with high loan-to-value ratios up to 95%
• Lower interest rates compared to uninsured mortgages
• Flexible amortization periods extending beyond 25 years
• Avoid lender high-ratio surcharges on small down payments
• Homeowner protection if unable to make payments

So with CMHC, you get more affordable mortgage terms to realize your homeownership dreams sooner.

How Much Does CMHC Mortgage Insurance Cost?

CMHC insurance comes with a premium paid monthly along with your mortgage payment. It varies based on factors like your down payment, amortization period, and loan-to-value ratio.

For example, with a 5% down payment on a $500,000 home, the premium would equal 2.8% of the mortgage amount. That’s about $140 extra per month. Over time, premiums decline annually as you pay down the mortgage.

Insurance rates are very reasonable for the benefits and borrowing flexibility gained. CMHC even offers a 10% refund on premiums after 5 years.

How to Get the Best CMHC Mortgage Rates

CMHC sets its mortgage insurance rates based on your down payment and credit score:

• 5% down requires 2.8% to 3.6% premium
• 10% down drops rates between 1.7% – 2.4% range
• 15% down sees rates of 1.2% – 1.8%

So the more you put down, the lower your premium. Having better credit also reduces premiums. Shopping mortgage lenders for the best available insured rate will maximize savings.

CMHC Insurance Protects New Homebuyers

For new homeowners, CMHC mortgage loan insurance makes financing achievable. Protect yourself by understanding premium costs and shopping lenders for your best option.

With lower monthly payments, flexible terms, and needing minimal down payment, CMHC opens the door to homeownership for thousands of Canadian families. Check if you qualify and gain financial stability with insured financing.