The thrill of buying a home is tremendous but associated with several financial factors. CMHC fees stand out as an important concern for many Canadians, especially those receiving a down payment of less than 20%. As of 2024, CMHC fees are one of the key factors that most first-time homebuyers must consider, except they could not have saved up enough for a sizeable down payment. In this blog, we break down what CMHC insurance is, how it works, and how you calculate your premiums in simple words.
What is CMHC Insurance?
CMHC insurance, officially titled mortgage default insurance, protects lenders if a borrower fails to repay their mortgage. provide mortgage default insurance
However, CMHC insurance isn’t just a boon for lenders; insurance also serves homebuyers. It helps make many Canadians able to buy a home for a down payment as low as 5% of the home’s value. Insurance can even allow people who do not have the traditional down payment savings of 20% of the home’s value to become homeowners.
Important to know: CMHC insurance is mandatory if your down payment is less than 20% of the purchase price of a home. This will protect the lender but will be paid for by the borrower like you.
How Much Does CMHC Insurance Cost?
The cost of CMHC insurance depends on the size of your down payment and the amount of your mortgage. The smaller your down payment, the larger your insurance premium.
For instance, if you put down the minimum 5% of a down payment, the CMHC insurance premium can be as high as 4% of your total loan amount. However, the closer your down payment is to 20%, the lower your premium rate will be.
The following is a loan-to-value table – this is essentially your mortgage amount to the home purchase price and the insurance premium percentage associated with that:
5% Down Payment (95% Loan-to-Value): 4.00% premium
10% Down Payment (90% Loan-to-Value): 3.10% premium
15% Down Payment (85% Loan-to-Value): 2.80% premium
Example:
You are a first-time home buyer, buying a $500,000 home and putting in only 5% down on it which will amount to $25,000. Your mortgage loan will be $475,000. With a 4% premium rate, your CMHC insurance will cost you around $19,000. You can pay this finance at closing or put it into your monthly mortgage payment for your property.
Calculating Your CMHC Insurance Premium
Planning is much easier with the CMHC mortgage insurance calculator as you can calculate your premium for a given down payment amount and purchase insurance price. Using the actual asking price of your home, down payment, and mortgage details, you can immediately see how much extra you will pay.
Key Factors That Affect Your Premium:
Purchase Price:
The total asking price of the home.
Amount of Down Payment:
The percentage of the price of that home that you pay upfront.
Amount of Loan:
The amount you’ll borrow after subtracting that down payment.
Loan-to-Value:
How does your mortgage loan compare to the actual value of that home
Now that you have an estimate of how much your premium will be, it’s time to decide how you’re going to pay for it.
How to Pay for CMHC Insurance
There are two primary options available to you when it comes to your CMHC mortgage insurance premium:
Upfront Lump-Sum: Pay the amount at closing.
Roll It into Your Mortgage: Most of the time, you would prefer to roll over the premium to your mortgage so that you have to increase your mortgage pay. However, spreading it out and making it part of your payment makes it better.
And also do not forget that when you roll it over to your mortgage, you are also paying interest on the mortgage life insurance premium as well.
Do You Need CMHC Mortgage Insurance?
CMHC insurance is mandatory in Canada for all homes that have a down payment amount of less than 20% for the home. More than 20% and you wouldn’t need CMHC insurance; mortgage lenders could then give you an uninsured mortgage in Canada.
However, there are some facts to know:
In Canada, CMHC insurance isn’t available on homes priced over $1 million.
You will not be approved if the down payment source is not CMHC eligible (e.g., borrowed down payments from certain non-traditional sources).
Insurance only applies to properties in Canada.
Provincial Sales Tax on CMHC mortgage Insurance Premiums
There may also be a provincially levied tax on your CMHC premium in Canada, depending on which province you live in. In Ontario, Quebec, and Manitoba, there is a provincial sales tax applied to the CMHC insurance premiums. You pay this at closing and can’t add it to your mortgage amount.
Understanding CMHC Portability
As long as you used CMHC insurance on a previous home, you can port it over. This means that you can take the CMHC insurance from one mortgage and apply it to the other, saving you money on your insurance premium at the time of a new home purchase.
This would be a good option if you have upgraded or downsized and do not wish to pay again for CMHC insurance on a new home.
Other CMHC Fees and Considerations
As a final point, depending on your specific situation, you might also have to pay additional CMHC fees, including fees for mortgages amortized over more than 25 years, or down payments based on borrowed money. Certainly, you’ll want to take into consideration how these factors will affect your total monthly payment – so be sure to get the best information possible about any such fees from your lenders.
How CMHC Insurance Impacts Your Mortgage Payments
The amount of CMHC insurance on your monthly mortgage payments installments is big, considering that you add the premium to your mortgage balance. Though convenient to spread the payment, it will balloon in total repayments over a long period as it attracts interest charges.
For example, if you roll your CMHC premium into your mortgage payments, your monthly payments will include the principal and interest as well as the insurance cost. For the 25-year mortgage term, the added premium can result in an easily noticed hike in your monthly costs.
Tip
Always use the CMHC mortgage insurance calculator before making a decision. It helps estimate the impact of adding the premium to your mortgage versus the payment to be made upfront.
Conclusion: Right Choice for Mortgage
Of course, another important consideration for any buyer who will make a down payment of less than 20% will be fees charged by CMHC, plus mortgage insurance premiums. While no doubt an extra cost above and beyond what you thought you owed, those fees can also be an important part of getting you into your first home. That’s because it allows many Canadians, particularly first-time homebuyers, to purchase a home using less up-front cash while still securing financing from mortgage lenders.
Consider all of these: loan-to-value ratio, your monthly payments, and the total premium cost. You may apply the CMHC insurance premium calculator and talk with your mortgage lender which is the best choice for you.
If you need further assistance in determining how to navigate your way out of CMHC fees or perhaps find guidance on obtaining the best mortgage deals, then Shelto Mortgage will be there to guide you.
Contact Shelto Mortgage today and let our experts guide you through the mortgage process. We will help guide you through the many different financial decisions you are responsible for during your homebuying journey!
