Canada Mortgage and Housing Corporation (CMHC) is Canada’s national housing agency. Established as a government-owned corporation in 1946 to address Canada’s post-war housing shortage, the agency has grown into a major national institution. CMHC is Canada’s premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.
Mortgage default insurance, commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5%, the minimum in Canada, and 19.99%. Mortgage default insurance, protects lenders if a home owner defaults on their mortgage.
On July 9th, 2012, the Canadian government made 2 key changes to CMHC insurance regulation:
1. CMHC insurance will not be available on homes >$1 Million requiring purchasers to put at least 20% down.
2. Maximum amortization period offered on CMHC insured mortgages will be 25 years.
How do you pay mortgage default insurance?
Mortgage default insurance is financed through your mortgage. Unlike closing costs such as lawyer fees and land transfer tax, it does not require a lump sum cash outlay at the time you purchase your home. Your insurance premium is added to the value of your mortgage, and your monthly payment increases accordingly.
How to minimize CMHC insurance?
There is one way to minimize mortgage default insurance:
Increase your down payment (as a percentage of your home)
If you want to increase your down payment as a percentage of your home value, you will either have to increase the amount you put down or purchase a less expensive home. Examining the first option, you may want to consider additional sources for your down payment, such as a gift from a family member or, if you are a first-time home buyer, a tax-free loan from your RRSP.