CMHC Mortgage Insurance 101

CMHC Mortgage Insurance 101

There are quite a few costs that new homeowners don’t account for over and above their normal monthly mortgage payment. From closing costs to interest rates, it can feel overwhelming. One of the ongoing expenses you will likely need to budget for is CMHC mortgage insurance. In this week’s article we are going to discuss the purpose of CMHC and what exactly this means for your monthly payments.

How CMHC Protects Lenders

CMHC mortgage insurance is simply mortgage default insurance designed to protect lenders in the case that you can’t pay your mortgage anymore. This insurance is mandatory for homeowners who put down less than 20% of the purchase price on their new home. However, there are two insurance providers aside from CMHC who can also offer this product. It is important to note that Canada Guaranty and Genworth Financial are private companies that can set their own rates. CMHC, on the other hand, is a crown corporation and as such is governed by federal law.

The Real Costs of CMHC Mortgage Insurance

As with most other types of insurance, your CMHC fee will be added onto your monthly mortgage payments. The cost is entirely dependant on the amount of your downpayment. The more you put down, the less you pay in insurance. Here’s a breakdown of the fees against the percent down for your reference. Expect to be paying between 2.8% and 4% in CMHC premiums.

Ways to Avoid CMHC Costs

If you want to lessen or bypass mortgage insurance completely, there are a few options you can explore:

  1. Buff up your downpayment. The more you pay, the less insurance will cost. Once you hit 20% you no longer need mortgage insurance. Some new homeowners will use their RRSP to achieve this.

  2. Refinance or port your mortgage. In some cases you can avoid CMHC fees by refinancing or porting your mortgage. Check with your broker to help you translate the fine print to see if this is an option.

  3. Request a short amortization period. The shorter you can go, the less you will need to pay in premiums. If you can handle the higher monthly payments, you will end up saving on CMHC costs. Just ensure that this is a realistic option for you.

CMHC mortgage insurance gives more people the opportunity to be homeowners than ever before. Keep these costs in mind when budgeting for your new home. If you have more questions about CMHC insurance or how to decrease your payments, the expert brokers at Source Mortgage can help! Call us today at 403-341-7800.

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Source was absolutely great to work with - went above and beyond to help us get everything done when buying our new home. Highly recommended!! Chad and Jenelle Richards Jan 09 2013

Chad and Jenelle Richards
Added January 23rd 2013

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