CMHC Insurance (Mortgage Default Insurance)
Mortgage default insurance, which is commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders, in the event a borrower ever stopped making payments and defaulted on their mortgage loan.
Although mortgage default insurance costs homebuyers 2.80% – 4.00% of their mortgage amount, it does allow Canadians, who might not otherwise be able to purchase homes, access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance, because the risk of default is passed along to the mortgage insurer.
Qualifying for mortgage default insurance
- The maximum amortization for insured mortgages is 25 years.
- Mortgage default insurance is not available on homes purchased for more than $1.5million; this means that a 20% down payment is required on these homes.
- A down payment is the amount of money you put towards the purchase of a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home. The minimum amount you need for your down payment depends on the purchase price of the home. If your down payment is less than 20% of the price of your home, you’ll typically need to buy mortgage loan insurance.
If you’re self-employed or have a poor credit history, your lender may require a larger down payment. Normally, the minimum down payment must come from your own funds. It’s better to save for a down payment and minimize your debts.
Purchase Price of Your HomeMinimum of Down Payment$ 500,000 or Less5% of the purchase price$ 500,000 to $1.5 Million5% of first $500,000 of the purchase price$ 1.5 Million or more20% of the Purchase priceExample: How to calculate your minimum down payment
The calculation of the minimum down payment depends on the purchase price of the home.If the purchase price of your home is $500,000 or less
Suppose the purchase price of your home is $400,000. You need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5% is equal to $20,000.If the purchase price of your home is more than $500,000
Suppose the purchase price of your home is $600,000. You can calculate your minimum down payment by adding 2 amounts. The first amount is 5% of the first $500,000, which is equal to $25,000. The second amount is 10% of the remaining balance of $100,000, which is equal to $10,000. Add both amounts together which gives you a total of $35,000.
Mortgage default insurance calculator
The calculator below will give you an idea of how much CMHC insurance might cost on your mortgage. Put in an asking price and a down payment amount and it will estimate your mortgage insurance premium.
