CMHC Mortgage Insurance Explained
by Jonathan Fung, Vancity Mortgage Specialist!
What is CMHC Mortgage Insurance?
To answer this question, I recently met with Jonathan Fung, a mortgage specialist with Vancity who was kind enough to discuss CMHC mortgage insurance with us.
What is CMHC Mortgage Insurance?
CMHC stands for Canada Mortgage and Housing Corporation, which is a Crown Corporation owned by the Federal Government. One of CMHC’s core functions via its Mortgage Insurance is to assist illegible buyers in purchasing a home in Canada with less than a 20% down payment.
Lenders and Financial Institutions view property purchases with less than a 20% down payment as higher risk of default (ie Borrowers not paying their mortgage). Without CMHC mortgage insurance, lenders typically will not lend to borrowers with less than a 20% down payment.
CMHC insurance is available and required anytime a purchaser wants to buy home in Canada with between a 5% and 20% down payment. CMHC Mortgage Insurance does not insure property purchaser, but rather the financial institution where the purchaser is borrowing the money. CMHC Mortgage Insurance insure the lender so that if the borrower doesn’t pay their mortgage, the lender gets their money back.
Whats the Catch with CMHC Mortgage Insurance?
There is a cost! CMHC charges an insurance premium that varies depending on the size of the mortgage. But they essentially allow for people who have less 20% to get into the housing market and be homeowners.
For example, if you are buying a property with a mortgage of over $500,000, you put 5% down. Is there a chance for the CMHC mortgage insurance premium to be more than the 5% down payment?
As the mortgage amount increases and as the down payment is less, the insurance premium could add up quite a bit. In the worst-case scenario, the premium could be over the amount of the down payment. So best advice is to get as close to the 20% down payment mark as possible. Having 20% or more is always the best option because you avoid the CMHC insurance premium requirement, but CMHC is there to offer more options and help people be homeowners if they don’t have 20% down.
If you have any more questions for Jonathan Fung, about CMHC mortgages or any mortgage questions in general, he can be reached at (604) 356-1589.
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