CMHC insurance (now branded as CMHC Mortgage Loan Insurance) is a government-backed insurance that protects lenders in case a borrower defaults on their mortgage. It’s mandatory in Canada when a buyer purchases a home with less than 20% down. This is very popular for first-time homebuyers who often don’t have the full 20% down payment typically required as it makes homeownership possible with as little as a 5% down-payment. Mortgage loan insurance helps stabilize the housing market and helps ensure the availability of mortgage funding.

When Are You Required to Get CMHC Insurance?

You need CMHC insurance if:

Your down payment is less than 20%
The purchase price is under $1.5 million
You plan to live in the home yourself as your principal residence (not rent it out)

To get mortgage loan insurance, you need a minimum down payment. The amount depends on the home’s purchase price.

$500,000 or less: you need at least 5% down
$500,000 to $1,499,999: you need 5% down on the first $500,000 and 10% on the remainder
$1,500,000 or more: mortgage loan insurance is not available.

What CMHC Doesn’t Cover

You can’t use it for rental or investment properties
You can’t use it if your home costs $1.5 million or more
You can't choose amortization over 25 years (unless you are a first time buyer and take advantage of the CMHC Home Start program)

How Much Does CMHC Insurance Cost?

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 smaller your down-payment, the higher percentage you will pay in insurance premiums.

Premiums in Ontario, Quebec and Saskatchewan are subject to provincial sales tax. The provincial sales tax cannot be added to the loan amount.

Like any other kind of insurance, there are premiums to be paid. The lender typically passes on the cost of insurance to the borrower. The premiums can be paid up front in a lump sum or blended in with your mortgage loan payments (most people add the premium to their mortgage, so that it’s paid off over time)

Example Calculation:

Let’s look at a property priced at $760,000. We’ll compare a conventional down payment with a CMHC Purchase down payment.

Conventional down payment: $760,000 x 20% = $152,000

Down payment with CMHC Purchase: = 5% of $500,000 + 10% of $260,000 = $25,000 + $26,000 = $51,000

Comparison: In this example, CMHC Insurance reduces the minimum down payment required by $101,000!

What are the Benefits?

You don’t need to save 20% to buy your first home — just 5% to 10% in many cases
Encourages homeownership by making it more accessible so you can become a homeowner sooner
Lenders are more likely to approve your mortgage due to lower risk
You usually get a lower interest rate than a non-insured mortgage so you actually save money
For many borrowers, the cost of CMHC Mortgage Loan Insurance is more than fully offset by the savings achieved.

Requirements to Qualify

To get CMHC insurance, you must mee these requirements:

Any buyer can qualify for CHMC insurance (you don’t need to be a first-time buyer)
At least one borrower (or guarantor) must have a minimum credit score of 600 (CMHC may consider alternative methods of establishing creditworthiness for borrowers without a credit history).
Keep your monthly payments within maximum thresholds (called the debt service ratio an)
- Gross Debt Service (GDS) Ratio: 39%
- Total Debt Service (TDS) Ratio: 44%
Choose a 25-year amortization or less
Individuals must be Canadian citizens, permanent residents of Canada, or non-permanent residents authorized to work in Canada (for homeowner loans only).
Property must be in Canada, suitable and available for full-time, year-round occupancy, and must have year-round access (via a vehicular bridge or ferry if on an island).

CHMC Insurance and Pre-Construction

CHMC Insurance is available on pre-construction properties that are purchased from a builder. However the CHMC Insurance applies to your mortgage which you only get a closing. To secure the property today, you must still provide the deposits according to the builder’s deposit structure (which is nearly always more than 5% down). The builder’s deposit and your mortgage/CMHC are completely separate things!

Let’s take a look at an example:

Purchase Price of Pre-Construction Condo: $400,000
Builder’s Deposit Structure: $40,000 spread over 1 year = 10% Deposit
CHMC Down-Payment Required At Closing = $20,000 (5%)

Since you only get the mortgage at closing in several years, here is what can happen - you are eligible to get CHMC Insurance and put down just 5%, but wait - you already have 10% down! This means you could get a refund of 5% ($20,000) back on your purchase that you could use to furnish the property or for other purposes!

Other CHMC Programs that are Available

Here are some of the benefits of CMHC’s mortgage loan insurance products:

CMHC Purchase can help open the doors to homeownership by enabling homebuyers to buy a home with a minimum down payment from flexible sources.
CMHC Home Start allows borrowers who are either first-time homebuyers or purchasing a newly built home to use a 30-year amortization period.
CMHC Improvement allows the purchase of an existing residential property with improvements and new construction financing.
CMHC Newcomers is available to borrowers with permanent and non-permanent residence status. It helps them access housing they can afford and meets their needs.
CMHC Self-Employed enables self-employed borrowers with documentation to support their income access CMHC mortgage loan insurance.
CMHC Refinance enables current homeowners to add secondary suites to their existing homes.
CMHC Eco Plus offers a partial premium refund of 25% directly to borrowers who buy newly built climate-friendly housing using CMHC-insured financing.
CMHC Eco Improvement offers a partial premium refund of 25% directly to borrowers who invest a minimum of $20,000 on energy efficiency improvements.
CMHC’s Portability feature saves money for repeat users of mortgage loan insurance by reducing or eliminating the premium payable on the new insured loan for the purchase of a subsequent home.
CMHC Income Property provides investors with more housing finance choice when purchasing a rental property.

If you're buying a pre-construction property and plan to live in it, you might qualify with as little as 5% down — but you’ll need CMHC insurance. If you're buying for investment purposes, CMHC is not available, and a minimum 20% down payment is required.

Ask your mortgage broker for more details. Contact me if you need an introduction to a mortgage broker!