What is CMHC?
Canadian Mortgage and Housing Corporations Mortgage loan insurance is typically required by lenders when home buyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20 % down payment.
What does CMHC insurance do for me as a lender?
Well, CMHC is not life insurance, it is DEFAULT insurance, thus in the case that you default on your mortgage (stop paying your mortgage, and have your home potentially foreclosed), the loss will be covered. BUT, here's where many people get confused, it is the lender's loss that is covered, NOT YOURS. CMHC will likely still come after you, and the default will still go against you. Thus, you are paying to have less risk to the lender not yourself.
So whats the point of CMHC, if I am not covered?
Well think of it this way, if CMHC insurance wasn't around, we will all be waiting until we could save up 20% down payments, to purchase our homes. Think about how long it took you, especially first time home buyers, to save that 5% down payment, 20% is simply out of reach for many people.
Although CMHC is a large cost, it saves us the time, and money we will spend along the way of renting and waiting. Thus enabling more people to get into the housing market, and helping keep the market strong with many buyers.
Just 5% down?
Yes, you can buy a home with a down payment of less than 10%:
Single-family dwelling: 5%
Two-unit dwelling: 7.5%
Minimum Equity of 5% from your own resources is required. Gifted down payments from an immediate relative are acceptable.
Once the following conditions are satisfied, you are eligible for CMHC Mortgage Loan Insurance:
- Your principal residence is located in Canada.
- You have a down payment of at least 5% of the purchase price of the property.
- Your home-related expenses do not exceed 32% of your gross household income.
- Your total monthly debt load does not exceed 40% of your gross monthly household income.
The minimum down payment for a second home purchase in Canada is 5%. CMHC allows Canadians to own up to two high ratio insured properties. To be eligible for a second home property purchase with a 5% down payment, borrowers must intend to occupy the property either themselves or have it occupied by an immediate family member. No rentals are allowed under this program.
Misconceptions on CMHC
- CMHC insurance does not cover you when you pass away. You should still look into mortgage life insurance, or a term or permanent insurance product.
- CMHC is not house insurance, it doesn't protect your house or it's contents. It's important to still insure your home and contents against fire, theft, etc.