Mortgage Insurance: making it possible to purchase a home with as little as 5% down.
Mortgage Insurance is also commonly referred to as Mortgage Default Insurance or CMHC Insurance is mandatory in Canada for down payments between 5% and 19.99%. Mortgage insurance protects the lenders in the event a borrower stops making payments and defaults on their mortgage loan.
Mortgage insurance allows home-buyers to access the real estate market when they otherwise would not be able to. The service does have a cost of between 1.80%-3.60% of the total mortgage amount; however, without the insurance mortgage rates would be higher and the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance since the risk of default is passed along to the mortgage insurer.
There are some requirements you have to meet in order to qualify for mortgage default insurance:
- The maximum amortization for insured mortgages is 25 years
- If the purchase price is between $500,000-$999,999 a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% for the remaining amount.
- Mortgage default insurance is not available on homes purchased for more than $1 million; that means that a 20% down payment is required on these homes.
The below table will help you determine the which mortgage default insurance premium you may have to pay.
|Loan to Value||Premium on Total Loan Amount||Premium on Increase to Loan Amount for Refinance|
|Up to and including 65%||0.60%||0.60%|
|Up to and including 75%||0.75%||2.60%|
|Up to and including 80%||1.25%||3.15%|
|Up to and including 85%||1.80%||n/a|
|Up to and including 90%||2.40%||n/a|
|Up to and including 95% - traditional down payment||3.60%||n/a|
|Up to and including 95% - non-traditional down payment||3.85%||n/a|
For additional information, please visit the CMHC home ownership products website.