Mortgage Basics: What is CMHC mortgage insurance?

Hi, Ryan Zupan here with The Mortgage Centre – City Wide.  Today, we’re continuing our talks on the very basics of a mortgage & go over mortgage insurance.  What is mortgage insurance?

Here in Canada, if you purchase a home with less than 20% down, you will need to purchase mortgage insurance.  Commonly referred to as CMHC, but is also offered by Genworth & Canada Guaranty.  Your mortgage insurance premiums are the same no matter where you go, so you don’t have to worry about shopping around.  And that amount is just added to the mortgage amount & paid off over time.

Now the guidelines between the insurers aren’t actually the same.  So this is where a broker can be very useful because we can match you up with a lender that works with the insurer, who best fits your situation.  Not all lenders work with all the insurers.

So what kind of premiums are we talking about?  If you purchase a home with the minimum down payment – 5% – the premium is 2.75% of the mortgage amount, not the purchase price.  The premium does go down for every 5% you put down:

5% down – 2.75%
10% down – 2.00%
15% down – 1.75%
20% down – n/a

Now, if you choose an amortization longer than 25 years, let’s say 30 years, that premium is 0.20% more.

In my opinion, mortgage insurance is a good thing, because without it, first time buyers would have a much harder time getting into the real estate market.

Without mortgage insurance, banks would not want to finance purchases with, say, 5% down because it’s a riskier investment.  Banks do not like foreclosures because they typically lose money going through all the legal proceedings, the lost mortgage income & trying to sell the place.  That 5% of your equity will get swallowed up extremely quickly if you decide to run off to Tahiti after closing.

More options are good options.

I’m Ryan with the Mortgage Centre – tune into my next video where we’ll go over why it’s better to pay the premium & buy, rather than waiting to save 20% down.

Ryan Zupan