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The Canada Mortgage and Housing Corporation (CMHC) is Canada’s national housing agency. This organization is a government department that assists Canadians with accessing affordable housing. The CMHC provides what is known as mortgage default insurance, or CMHC insurance, a mandatory insurance premium that is paid by homebuyers to protect financial institutions should a homebuyer be unable to pay off their mortgage.

The purpose of CMHC fees

CMHC fees are compulsory for homebuyers who pay a down payment that is less than 20% of the property’s selling price. A homebuyer is expected to pay 2,8% to 4% of their home loan towards CMHC fees. The higher the down payment, the less a homebuyer has to pay in CMHC fees. CMHC fees assist with helping people access the real estate market, as financial institutions are more eager to give out mortgages to applicants who are protected by mortgage default insurance. This is because should the borrower default on paying their home loan, the insurer will carry the loss.
Added to that, mortgage default insurance also reduces mortgage interest rates as well as the amount a homebuyer pays towards a down payment. For example, with CMHC fees, a person can buy a home with as little as 5% deposit on the selling price, and this makes it easier for first-time home buyers and middle to low-income communities to become property owners.

How to know if you qualify for CMHC insurance

Not all homebuyers with a mortgage will be covered by CMHC insurance as there are conditions for qualification. The conditions in question are: your down payment must be less than 20% of the price of your property or your property should be difficult to sell (for example, a property that is not well maintained or is an isolated area).
Further conditions to qualify for CMHC insurance are:

• Houses with a selling price above $1 million are not eligible for CMHC insurance.
• Instead of paying a monthly premium with your mortgage, you can opt to pay a lump sum.
• Your loan-to-value ratio determines the rate of your insurance premiums. The loan-to-value ratio describes the value of your home loan in relation to the value of your property and is calculated by diving the home loan with the property value.
• For a home worth $500,000 to $999,000 a minimum down payment of 5% is required for the first $500,000 - with 10% required for the amount remaining.
• You should not borrow money for the down payment however, in some circumstances, lenders will accept a gifted down payment.
• Homebuyers must have a credit score of at least 680, a gross debt ratio below 35, and a total debt ratio below 42.

Buying a home often includes some hidden costs, such as closing costs. It’s important to factor this in with the CMHC fees you’ll be expected to pay should you qualify. Closing costs are approximately 2% to 5% of the property’s value and they are inclusive of lawyer’s fees, transfer fees, property valuation fees, home inspection fees, and title home insurance.
CMHC insurance is beneficial in promoting accessibility to the real estate market. Applying for CMHC fees can be a great way of reducing your down payment costs and interest rates, as well as becoming more eligible for a mortgage in the eyes of lenders as they will be protected from any possible defaulting. CMHC insurance can also help with saving in the long-term, as you’d avoid further administrative costs.