With rapidly rising home prices, many buyers are unable to put down a large down payment. Mortgage brokers and banks are willing to carry the lion’s share of the investment by provide financing for the remainder of the purchase price, but they do want to protect themselves. That’s where mortgage insurance comes in.
Mortgage Insurance, provided by the Canada Mortgage Housing Corporation (CMHC), is required when a down payment is between five and 20% of the purchase price. The insurance protects the lender and ensures that they will not lose money on a high ratio mortgage in the event that the buyer defaults. This premium is paid by the lender, however the cost is typically passed on to the client by adding it on to the mortgage.
What are the benefits?
- Home buyers can front as little as 5% of the purchase price of a home.
- Mortgage insurance applies to a variety of property types.
- This is applicable Canada-wide.
- There are a variety of products offered through CMHC that can fit within a buyers needs. *Check with your lender*
What are the requirements?
- The home must be located in Canada.
- The maximum purchase price must be below $1,000,000.
- For a purchase price of less than $500,000, the minimum down payment is 5%. For those properties with a higher purchase price, the minimum down payment for the first $500,000 is 5% and 10% for the remainder.
- While a down payment is typically drawn from a buyer’s existing funds, gifted funds or various other borrowed funds are sometimes permitted. *Check with your lender for specifics*.
- Housing costs (principal, interest, taxes, heating) should not comprise more than 32% of your gross household income. The CMHC provides a form to help you calculate what you can afford to be eligible.
- As with all financial transactions involving a lender, check with them before you make any and all commitments!
What does mortgage insurance cost?
The mortgage insurance premium is calculated as a percentage of the loan and based on the down payment. When applying for a mortgage, a lender will provide the exact price, however, it is good to note that the larger your down payment percentage is, the less your insurance premiums will be.
The CMHC does offer a 10% insurance premium refund when you purchase an energy-efficient home or renovate to increase your energy savings which is worth looking into in order to reduce costs.
Have questions? We’ve got some great partners that we recommend. They are always available to answer all your mortgage related questions.