CMHC plays a major role in Canada's housing industry by improving housing affordability and choice for Canadians through mortgage loan insurance. The National Housing Act Mortgage Loan Insurance facilitates access to home ownership by enabling the purchase of a home with a minimum down payment of five percent. Without mortgage insurance, some consumers would not be able to access home ownership at all, or would be charged significantly higher interest rates for their mortgage.
"Cash Backs" are regarded as purchase incentives and are viewed as an offer intended to encourage a homebuyer to proceed in completing a specific real estate transaction. CMHC's policy and direction to lenders on purchase incentives remains unchanged. Purchase incentives for the purpose of CMHC mortgage loan insurance can generally be grouped into two categories:
incentives that contribute to the overall value of the property (e.g. flooring upgrades, finishing upgrades, etc); and,
incentives that do not contribute to the overall value of the property and that have associated cash values (vendor cash backs, interest rate buy-downs, waiving of condominium fees for a period, etc.).
Applications for mortgage loan insurance that include incentives that contribute to the overall value of the property are assessed as per any regular mortgage insurance application. If an application for mortgage loan insurance includes any other type of incentives, lenders applying for the mortgage loan insurance are expected to deduct the value of any known purchase incentive form the purchase price prior to submitting the application to CMHC.
Source: Audrey Moritz in Underwriting with CMHC