An Introduction to CMHC
For anybody planning on purchasing a home in Canada, the first question will always be "what is your intended downpayment?" Those putting less than 20% down are considered to be "high-ratio" borrowers and are, by law, required to purchase mortgage default insurance (commonly referred to as "CMHC insurance") when using a nationally regulated lender. The cost of this insurance (called the "premium") is paid for by the borrower, but the sole benefit goes to the lender - if the mortgage incurs a loss because of non-payment, the lender is fully reimbursed by the Canadian Mortgage and Housing Corporation (CMHC*). From the borrower's perspective, the single-biggest advantage of obtaining CMHC insurance is access to the lowest mortgage rates available on the market; since lenders have very little risk of loss in an insured transaction, they are able to offer the best rates to those who buy with as little as a 5% downpayment.
CMHC insurance is not paid out of pocket, but rather added to the initial mortgage balance and amortized over the life of the mortgage. Any mortgage carrying insurance is subject to CMHC's underwriting rules. These rules, which the Department of Finance Canada changes regularly, form the backbone of every Canadian lender's guidelines; that is, while individual banks, credit unions and broker-only lenders might have minor guideline differences on certain properties and borrowers, they are ALL subject to CMHC's basic rules.
Obtaining approval for a CMHC-insured mortgage is a multi-step process (see below). A mortgage broker will take a borrower's purchase application and ensure that it meets a desired lender's criteria. After the application is okayed by the lender, it is forwarded to CMHC for ultimate approval. Once approved, the lender takes back the file and can produce a commitment letter, which the client may then use to satisfy the financing condition on an offer to purchase. Even when all information and documents are provided upfront this process can take several days.
Typical Mortgage Approval Process (Application to Commitment):
1) Client Consultation and Application with Broker
2) Lender Application Review
3) CMHC Review/Approval
4) Lender Approval
5) Client Commitment
*It should be noted - while there are actually 3 different mortgage insurance issuers in Canada (CMHC, Canada Guaranty, and Genworth), all have very similar products and premium pricing - for this reason, we can refer to the trio as "CMHC" for our purposes.
For an owner-occupied property (with 1 or 2 self-contained units), the minimum required downpayment when purchasing a CMHC-insured property is 5% of the purchase price*. This downpayment requirement rises to 10% when purchasing an owner-occupied triplex or 4-plex.
|Financing "Loan-to-Value" (LTV)||Premium Percentage** (on a purchase transaction)||Premium Percentage** (on a "top-up" transaction")|
|Up to (and inc) 65%||.60%||.60%|
|Up to (and inc) 75%||1.70%||2.60%|
|Up to (and inc) 80%||2.40%||3.15%|
|Up to (and inc) 85%||2.80%||4.00%|
|Up to (and inc) 90%||3.10%||4.90%|
|Up to (and inc) 95%||4.00%||5.65%|
|95%, non-traditional source of downpayment||4.50%||n/a|
Example: A buyer purchasing a $400,000 single-unit property would require a minimum of $20,000 downpayment:
$400,000 purchase -$20,000 downpayment = $380,000 initial mortgage
$380,000 x .04 (95% LTV, from chart above)= $15,200 CMHC Premium (will be added to initial mortgage)
Total new mortgage required: $395,200
It should be noted that in Ontario, Quebec and Manitoba, provincial sales tax is calculated on the CMHC premium and due at the time of closing (it CANNOT be added to and amortized with the mortgage). In all other provinces and territories the CMHC premium is tax-exempt. Additionally, there are certain situations where insurance premiums are higher for buyers qualifying under the "Business for Self" program.
*All purchases with a price exceeding $500,000 require a 10% minimum downpayment on the portion above $500,000. Purchases prices of $1,000,000 and up are not CMHC-eligible (more on large value mortgages here).
**Premiums reflected as of Mar 17th, 2017
Typically, federally regulated lenders will only allow owners to access up to 80% of their property's value via refinance. The one exception to this is in the case of marital dissolution. CMHC will allow one partner to access equity (up to 95% of the appraised value) in order to 'buy out' the property from their spouse. This buyout is subject to full qualification of the person remaining on title. It is also normally subject to a purchase agreement, finalized separation agreement, and full appraisal. Since this buyout incorporates a CMHC premium paid during the original financing, both legal and mortgage advice should be obtained when calculating its value accruing to each separating party.
For many years, CMHC has allowed buyers to build renovation financing into their purchases without any extra premium surcharge. A property is appraised on its "as-improved value" and extra funds are requested for the work. These funds are released to the lawyer at the time of closing, and subsequently released to the borrower once the renovation work has been completed. This program requires upfront building plans and quotes, so quick coordination between realtor, contractor and mortgage broker is key to a timely approval. You can read more on the CMHC Purchase-Plus program here.
Energy Efficiency Rebates
While most brokers and lenders don't bother to mention it, there can be substantial savings for homebuyers looking to upgrade the energy efficiency of their new home. This rebate varies between 15%-25% of the mortgage premium paid (depending on the EnerGuide rating achieved) and can result in thousands of dollars in savings. While this process will usually cost some money out-of-pocket, (there is a NRCAN assessment required) the offsetting benefit is usually more than worth it. Feel free to ask us about how this program might benefit you.
Frequently Asked Questions:
Does CMHC insure investment or rental-only properties?
No. As of Oct, 2016, CMHC is no longer insuring non-owner occupied investment properties at any valuation. This means investment properties require a downpayment of 20% or greater. One exception is multi-unit residential financing of 5 units and greater, for which CMHC still provides extensive commercial insurance.
Is CMHC insurance different than mortgage life insurance?
Yes. Mortgage default insurance (CMHC insurance) is required by, and for the benefit of, the lender only. Often, a broker will also offer mortgage life insurance along with the mortgage approval - this will be a separate product and will be for the benefit of the borrower in case of death or disability. Be sure to ask your mortgage broker if there is still any confusion around this distinction.
Can I talk to CMHC directly about my application?
No. CMHC does not have a public channel and will only speak with lender's underwriter on any given application. Even a mortgage broker will usually only be allowed to communicate with the lender when clarifying information on a file.
What happens when I move?
CMHC-insured mortgages can be "ported" from one property to another, especially when a borrower has less than 20% down on the new purchase. There will be top-up premiums owed when the new mortgage is greater than the old one, but porting a CMHC insured mortgage is usually the preferred approach and can be a great option for saving money during a move. More information is available on the Buying When Selling page.
Do I need to purchase CMHC insurance when my mortgage term renews/matures?
No. Mortgage insurance is purchased only once and remains in force for the life of the amortization (often 25 years), not just the life of the initial term. If you switch lenders at maturity, your mortgage broker will ensure your CMHC insurance is 'ported' to the new lender/term.
Can I purchase multiple owner-occupied properties using CMHC insurance?
It depends. CMHC removed its "Second Home" program in May, 2014 and with it the ability to make multiple high-ratio purchases. That said, other insurers in the space will offer financing on second homes and certain vacation homes - please call us for more options regarding your unique situation.
Question we haven't answered? Contact us for more information about CMHC programs.