Mortgage Loan Insurance
What is CMHC Mortgage Loan Insurance?
Mortgage loan insurance is typically required by lenders when home buyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% - with interest rates comparable to those with a 20% down payment.
To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home's purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
What's in it for You?
The Canadian housing finance system has benefited over the years from the simplicity and stabilizing effect of mandatory mortgage loan insurance. This insurance eliminates the risk to lenders, allowing them to offer borrowers like you mortgage funding at much lower interest rates and with smaller down payments than would otherwise be required.
Mandatory mortgage loan insurance provides a necessary safety net to the financial system, helping to ensure the availability of mortgage funding during times of recession and economic downturns.
A wide range of CMHC products are available through your lender. For example, if your house needs renovations, refinancing or if you're moving to another home, please check with your lender or mortgage broker on qualifying criteria for these flexible mortgage insurance options. Ask your lender about getting pre-approved for CMHC Mortgage Loan Insurance - this way you can find out beforehand how much of a loan you can qualify for..
CMHC's Mortgage Loan Insurance can help your lender meet your needs in many different ways. To learn more, read the Frequently Asked Questions about CMHC Mortgage Loan Insurance.
- You could purchase a home with a minimum down payment of 5%.
- CMHC's Mortgage Loan Insurance can be applied to many different types of housing.
- CMHC's Mortgage Loan Insurance is available everywhere in Canada.
- CMHC has several flexible products and options to help you and your lender to tailor your finances to your unique situation.
What's in it for Canadians?
Who Needs Mortgage Loan Insurance?
Typically, lenders require mortgage loan insurance for loans made to anyone that wishes to purchase a home with less than 20% of the purchase price. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment.
Through your lender, CMHC Mortgage Loan Insurance enables you to finance up to 95% of the purchase price of a home.
Use our mortgage calculator to help calculate the maximum house price you can likely afford, the maximum mortgage amount you can likely borrow, and your likely monthly mortgage payments (principal + interest). To learn more about the process of buying a home, see Home buying Step by Step. It can take the confusion out of the home buying process by helping you understand the various aspects to buying the home you really want.
What are the General Requirements to Qualify for Homeowner Mortgage Loan Insurance?
- The home is located in Canada.
- For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000, when the loan-to-value ratio is greater than 80%.
- You will typically have a down payment of at least 5% of the purchase price of the dwelling, depending on the dwelling type.
- Single-family and two-unit dwellings (5% minimum down payment)
- Three or four-unit dwellings (10% minimum down payment)
- Normally, the minimum down payment comes from your own resources. However, a gift of a down payment from an immediate relative is acceptable for dwellings of 1 to 4 units. For eligible borrowers, additional sources of down payment, such as lender incentives and borrowed funds, are also permitted. Check with your lender for qualifying criteria and availability.
- Your total monthly housing costs, including Principal, Interest, property Taxes, Heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, shouldn't represent more than 32% of your gross household income (Gross Debt Service (GDS) ratio). Use the GDS form to calculate how much you can afford in housing costs to be eligible.
- Your total debt load shouldn't be more than 40% of your gross household income. The Total Debt Service (TDS) ratio is your P.I.T.H. + the annual site lease in the case of leasehold tenure and 50% of condominium fees (if applicable) + payments on all other debt / gross annual household income. Add up your costs and determine your Total Debt Service ratio using the TDS form.
- You also need to think about closing costs (for example, legal and land transfer fees) equivalent to 1.5% to 4% of the purchase price. Many first-time buyers are surprised by these costs. That is why, when qualifying for CMHC's Mortgage Loan Insurance, our Home Purchase Cost Estimate worksheet form will help you calculate your total home buying costs.
Closing costs include but are not limited to one-time items such as lawyer fees, GST and PST as applicable, land transfer tax if applicable, adjustments, etc., to allow you to complete the house purchase.
- Other requirements may apply and are subject to change. For details, please contact your lender or mortgage broker.
How Much Can You Afford?
Not sure? If insured through CMHC, you can work out the mortgage loan that you can afford, with just a few simple calculations. If you don't know how much your monthly mortgage payment might be, you can use our mortgage calculator to determine the likely monthly payments (principal + interest) associated with different house prices at different interest rates.
The following calculations will help you determine how much you can afford. Your mortgage lender or mortgage broker will make these and other calculations when evaluating your unique situation. Ask them about being pre-approved for a CMHC-insured mortgage to avoid any surprises. You can also do the following exercises to find out where you stand.
Calculating Gross Debt Service (GDS)
This is a way of estimating the maximum home-related expenses you can afford to pay each month. To qualify for CMHC insurance, the total should not exceed 32% of your gross monthly household income.
Calculate your GDS
Calculating Total Debt Service (TDS)
This enables you to estimate the maximum debt load you can carry each month. It should not exceed 40% of your gross monthly household income.
Calculate your TDS
How Much Does CMHC Mortgage Loan Insurance Cost?
To obtain CMHC Mortgage Loan Insurance, lenders pay an insurance premium. Typically, your lender will pass these costs on to you. Your lender will give you the exact price when you apply for a mortgage.
The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.
Remember: without mortgage insurance you may avoid the insurance premium but you'll typically pay much higher interest rates and additional administrative fees. At the end of the day, for the vast majority of borrowers, the cost of CMHC Mortgage Loan Insurance is more than fully offset by the savings achieved.
A 10% premium refund, and a premium refund for a longer amortization period (if applicable) may be available when CMHC Mortgage Loan Insurance is used to finance an Energy-Efficient Homes.
||Premium on Total Loan
||Premium on Increase to Loan Amount for Portability and Refinance
||Self-Employed without 3rd Party Income Validation
||Self-Employed without 3rd Party Income Validation**
|Up to and including 65%
|Up to and including 75%
|Up to and including 80%
|Up to and including 85%
|Up to and including 90%
|Up to and including 95%
|90.01% to 95% -
Non-Traditional Down Payment***
|Extended Amortization Surcharges
Add 0.20% for every 5 years of amortization beyond the 25 year mortgage amortization period (for LTV = 80%).
Read more on the Canadian Mortgage and Housing Corporation website, http://www.cmhc-schl.gc.ca/en/co/moloin/index.cfm