An insured mortgage protects a lender if a borrower defaults on their mortgage. You must get an insured mortgage through the Canada Mortgage and Housing Corporation (CMHC). As of the first quarter of 2019, 41% of mortgages in Canada were insured mortgages.
If you are looking to buy a home, but you can only afford a down payment of 20% or less, mortgage loan insurance is mandatory. Mortgage loan insurance is not available for houses with a purchase price of $1,000,000 or more.
Although the lender pays the insurance premium, they will pass the price down to you in the form of either one lump sum or add it to your mortgage and include it in your payments. The maximum amortization for insured mortgages is 25 years.
How Have the Rules for Insured Mortgages Changed Since 2016?
In 2016 the federal government changed some of their rules regarding insured mortgages.
- If your mortgage is greater than $500,000 but less than $999,999, the minimum down payment cannot be less than10%.
- Any home buyer applying for a fixed mortgage with a term of 5 years or more must also qualify for the Bank of Canada’s posted rate.
- Homeowners with energy-efficient homes may be eligible for a discount of up to 25% on their CMHC premiums.
What Are the Minimum Down Payments for an Insured Mortgage?
Depending on your home purchase price, you’ll need a different minimum down payment for an insured mortgage.
- $500,000 or less, you’ll need a minimum down payment of 5%.
- More than $500,000, you’ll need a minimum of 5% down on the first $500,000 and 10% on the remainder.
What Impact Does an Insured Mortgage Have On Me?
A CMHC Insured Mortgage allows you to get a mortgage for up to 95% of the purchase price of a home. It also lets you get a more reasonable interest rate, despite a smaller down payment because it lowers the lender’s level of risk. With the help, an insured mortgage, funding for a mortgage is available even in an economic downturn.
How Much of My Home Purchase Price is the Insurance Premium?
Depending on how much money you put down on your house, the percentage that goes to pay the insurance premium varies. The percentage will generally fall somewhere in the range of 1.80% – 3.60%. That translates to around tens of thousands of dollars.
In Manitoba, Ontario, and Quebec, loan premiums on an insured mortgage are also subject to provincial sales tax. The tax can’t be added to your loan amount; it’s included in your closing costs.
How Do I Calculate My CMHC Insurance Premium?
To calculate your CMHC insurance rate you need to follow these steps.
- Calculate your down payment as a percentage of your home value by dividing your down payment by your home value.
- Calculate your mortgage by subtracting your down payment from your home value.
- Calculate your mortgage insurance premium by multiplying your mortgage amount by the percentage of your insurance premium.
When you add your mortgage amount to your insurance premium, you can see how much money you will need to borrow from your lender.
How Do I Avoid Mortgage Loan Insurance?
The number of uninsured mortgages have increased in recent years because more consumers are trying to avoid paying mortgage loan insurance.
To avoid paying for mortgage loan insurance, you need to be able to make a down payment of more than 20% for your home. You may need to save up your money for longer or consider buying a smaller house to afford a larger down payment.