There are several steps to understanding what happens to the CHMC insurance when you sell your property. These become even more so important when you are also buying a property right after selling one, which is why it is good to check the property value, porting policies, and lender agreements.
With CMHC porting, in many cases you can port your existing insurance to another property if you decide to buy after selling the existing one. The insurance premium can change depending on the value differential of the property, making it a highly flexible solution for buyers and lenders.
You can consult with the experts at sHelto to learn more about the best ways to port CMHC and understand its implications. You can also learn about how CMHC is transferred from the seller to the buyer and what conditions can be met with to transfer the insurance.
What is CMHC and why do you need mortgage insurance?
CMHC is referred to mortgage loan insurance, which is a tool that is designed to protect lenders in the case of defaulting. It is mandatory for all properties with a down payment of under 20%, and is required by all lenders as a part of the mortgage loan process.
The largest providers of mortgage insurance include Canada Mortgage and Housing Corporation (CMHC), Genworth financial Canada, and Canada Guaranty. When understanding your mortgage insurance premium or mortgage default insurance, it is important to know what provider your lender deals with.
The mortgage insurance is a key tool that protects the lenders so that they can provide the necessary loans to qualifying individuals. It is designed to protect the financial institution from a borrower default. You can also get a lower down payment on a house that you want to invest in and ensure that you’re paying the CMHC mortgage payments.
CMHC mortgage loan insurance is also important as it allows more buyers into the Canadian home market. Your property value can go up if there are more buyers that have access to capital without spending a significant down payment amount up-front.
Understanding selling a house with CMHC insurance
The process of selling a house purchased with CMHC insurance will differ in terms of loan value, amortization period, premiums, etc. The new buyer will also have to acquire CMHC insurance if the down payment is under 20%, with Canada allowing buyers to enter the market with down payments that are around 5% at the minimum in many cases.
You can also port your CMHC insurance agreement to another property if you are planning on purchasing a new residential property. In most situations, your lender will be able to work with CMHC to provide a fair assessment of your insurance premiums that may rise, lower, or stay the same.
The differential amount, with regards to the down payment, the loan period, the property value, etc. will determine what happens with the ported CMHC insurance amount. You may have to pay more for the new property if you are moving to a new location or are buying a larger house.
When will the buyer require CMHC insurance?
The new buyer will require CMHC insurance in most cases, especially for small to mid-sized homes that are under the cap limit. There are also factors that are important to note.
The purchase price is under $1M
All properties that are over $1M in Canada can’t be applicable for CMHC insurance in the country. You would need to ensure that you’re selling your property for under $1M to the new buyer.
The down payment is under 20%
If the buyer is able to pay a down payment of between 5 – 20% of the total value, then they can be applicable for CMHC insurance.
Maximum TDS is 44%
If the new buyer has a total debt service of under 44% then they can acquire mortgage insurance for the property.
Credit score is 600 +
The credit score of the buyer should be between 600-680 in most cases, allowing them to get a good rate so that they can buy the property and use CMHC insurance.
Amortization period under 25 years
The amortization period of the mortgage should be 25 years or under, allowing them to use CMHC insurance to benefit from the insurance.
Your new buyer will have to assess their financial situation and methods of payment for the new property. They can put down a higher down payment for the home, and avoid paying the insurance fees. They may also be able to deal with the lenders directly and receive the details about CMHC as well.
The insurance premium on the property will have to be continued on by the new buyer, along with other fees and monthly mortgage payments in many cases. Your new buyer will be able to prepare an “Offer to Purchase or Agreement of Purchase and Sale” with the details of the lender agreement or the broker information.
What happens when the buyer doesn’t need CMHC insurance?
In the event that the buyer is able to put down a down payment of 20%, then they may not be applicable for a CMHC insurance premium. You would have to deal with your lender to port the mortgage to another property, if you are planning on buying a new one after selling the existing one.
The lender will also be able to avoid CMHC insurance when they qualify for the pre-determined factors, such as credit score, property value under $1M, specific property types, etc. There may be different rules applicable to different property types, which is another factor to consider.
You can consult with the experts at sHelto, who can examine your exact case and provide the best options for you to save more with the right deal. Our experts can carefully assess your specific case and provide the best insights to help you with selling and porting your CMHC insurance.
When can the CMHC insurance be terminated?
In the event that your loan to value ratio or LTV is at or below 80%, then you can talk to your lender and get the insurance premium cleared. You can get the CMHC terminated in this case, as you have successfully paid your mortgage to the threshold.
Depending on the principal balance, as well as other factors, you can request the termination of the CMHC insurance. You can talk to your lender and have them remove the insurance charge if you have already cross the LTV 80% marker.
You have to ensure that you’re qualifying with all the predetermined factors set by the lender, such as ensuring that the property value doesn’t decline and that you have good credit worthiness. There may be additional requirements depending on the type of property you have purchased as well.
Here’s how you can port your CMHC insurance
You can transfer your CMHC insurance to another property if you are looking to buy a new home after selling your existing one. You may benefit from a premium discount if you are in good-standing with your lender and are qualified for a CMHC port.
The process of transferring your CMHC involves talking to your lender and having them provide different cases of procuring insurance when you are buying a new home. This will fall under three major cases, wherein either your premium rises, decreases, or stays the same.
The value of the new property, your mortgage premiums already paid, and your total debt ratio, will help you understand your CMHC insurance. If you are also buying a new property that is above $1M in value, then you may not be applicable for insurance in this case.
E.g. if you are buying a new home but your credit score has declined or your total debt service is higher than 44% then there may be complications. If you are also buying a non-owner occupied property with 2 – 4 units or an owner-occupied home, then the LTV, minimum eligibility, and other details will change as well.
You can also apply for premium credit, which can be applicable for a maximum of 24 months from the closing date of the existing loan to the application of the new loan. This can benefit you in several ways, especially when you are buying a new property within a shorter time-frame.
Conclusion
The best way to understand CMHC insurance post-selling is to check your options and your overall home ownership goals. If you are looking at a new mortgage or aiming to diversify your real estate market portfolio, then there may be several options available to you in Canada.
You can save money by looking at a larger down payment for your new property, checking out mortgage life insurance benefits, or discussing with your mortgage broker about premium discounts. You can sell a CMHC insured house with ease, and may get a new CMHC backed mortgage for a new property as well.
