Together, with friends at The Loop by Sympatico.ca, we decided that the most commonly misunderstood part of buying a home is the calculations that go along with it. As a result, Mortgage Math was planned and produced for homebuyers at any stage in the buying process.
You’ve found your dream home and have put in your offer to purchase with a 10 per cent down payment. In Canada, any down payment that is less than 20 per cent results in you (the buyer) having to pay mortgage default insurance, also known as CMHC insurance.
Mortgage default insurance protects your lender, should you default on your loan, and helps keep the cost of borrowing low. In our fifth Mortgage Math video, we’ve brought in Vice President of Operations at the Mortgage Emporium, Frank Uithoven, to explain how to calculate your CMHC insurance premium.
When you’re purchasing a home in Canada with less than 20 per cent down, you’ll have to pay mortgage default insurance. You might have heard of your friends refer to it as CMHC insurance. But how much extra will it cost you?
We’ve brought in Mortgage Broker Frank Uithoven to walk you through the calculations.
For this example, let’s say you purchased a home worth $474,000, and you saved up $40,000 towards the price of your new home.
The first thing you want to do is calculate what your new mortgage amount will be. To do that, it’s your purchase price minus the down payment. So, using our example, we’re going to take the home price less the down payment. That’s going to leave us with a new mortgage amount of $434,000.
Next, we want to calculate the down payment as a percentage of the purchase price. To do that, we’re going to divide the down payment of $40,000 into the home price of $474,000. For our example, that’s $40,000 divided by $474,000, which gives us 8.44%.
Next, we’re ready to calculate your mortgage insurance premium. This is your mortgage amount multiplied by your premium percentage. But where do we get your premium percentage from?
This chart will help you determine what your premium percentage will be, based on your down payment amount. So, this means that with an 8.44% down payment, you’re looking at a 2.75% premium.
Multiply your mortgage amount by your mortgage premium of 2.75%. That’s going to leave you with $11,935, which is how much your mortgage insurance is going to cost you.
Our last step is calculating your new total mortgage amount. To do this, you’re going to add your insurance premium to your mortgage amount. Using our example, we end up with an amount of $446,935.
If you want to decrease your insurance premium, you will need to increase your down payment. Additionally, for homes valued over $1,000,000, you are required to put a minimum of 20 per cent down, as you do not qualify for mortgage default insurance.