Mortgage Default Insurance (CMHC)
The calculator below will give you an idea of how much mortgage default insurance (CMHC insurance) might cost. Put in an asking price and down payment amount and it'll estimate your mortgage insurance premium.
How is CMHC insurance calculated?
CMHC mortgage insurance premiums are calculated based on the borrower’s loan-to-value ratio – the total mortgage loan amount divided by the property’s purchase price. The larger the loan-to-value ratio, the higher the insurance premium will be; for example, someone with a 95% LTV ratio (meaning they’ve paid 5% down with the remaining 95% purchased using a mortgage) will have a premium of 4%. In contrast, someone with an 80% LTV will pay a premium of 2.4%.
Do you need mortgage insurance in Canada?
Mortgage default insurance is mandatory in Canada for buyers who have paid less than 20% down on their home’s purchase.
What is an insured mortgage in Canada?
An insured mortgage is a home loan that is backed by mortgage default insurance, such as coverage provided from the CMHC. This coverage ensures that if the mortgage holder stops making their mortgage payments, their lender is protected from the impact of their default, as the insurer covers the loss. In order to be insured, the purchase price must be below $1 million, less than a 20% down payment has been made, and the home buyer must dwell in the property as their principal residence.
What is the difference between mortgage default insurance and mortgage life insurance?
Mortgage default insurance is mandatory coverage that is taken out and paid for by high-ratio borrowers.
Mortgage life insurance, on the other hand, is an optional coverage that mortgage holders can take out from their lender, which is intended to cover their mortgage debt should the borrower pass away, with the lender being the beneficiary. Keep in mind that this is a different product than traditional life insurance, in which the benefit funds can be used for any purchase, for the beneficiary of the policyholder’s choice.
Read more: Mortgage insurance vs. life insurance
Do I have to get insurance from CMHC?
No – the CMHC is not the only provider of mortgage default insurance in Canada; there are two other providers, called Sagen and Canada Guaranty. However, the premiums and borrower criteria are the same for all three insurers.
What is the minimum credit score for CMHC?
CoIn order to qualify for mortgage default insurance from CMHC or one of Canada’s other two providers, at least one of the borrower applicants must have a minimum credit score of 680. This also applies to guarantors who are co-signing the mortgage loan. However, for those who may not have built a credit history – such as newcomers to Canada – insurers may consider other methods to confirm their creditworthiness.
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Determine how much your CMHC insurance will be based on the percentage of your down payment.
Jamie David, Sr. Director of Marketing and Mortgages
Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada on property purchases where less than 20% of the purchase price was made as a down payment. Mortgage default insurance protects lenders in the event a borrower defaults on their mortgage loan. This is because borrowers who make smaller (less than 20%) down payments are considered to be higher risk; with less equity paid up front in their home, they are more financially vulnerable, and more likely to stop making mortgage payments should they come under financial hardship.
Mortgage default insurance premiums are added to the mortgage’s principal amount and amortized over the length of the mortgage, meaning they’re paid off as part of the borrower’s monthly payment.
Mortgage default insurance costs home buyers 2.8% to 4.0% of their mortgage amount. However, it does allow Canadians who might not otherwise be able to purchase homes access to the Canadian real estate market. Without it, overall mortgage rates would be higher, as the risk of default would broadly increase for lenders. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance because the risk of default is passed along to the mortgage insurer.
Qualifying for mortgage default insurance
There are some requirements you have to meet in order to qualify for mortgage default insurance:
- The maximum amortization period of 25 years.
- A purchase price between $500,000 - $999,999. Homes priced over $1 million cannot be insured.
- A down payment of less than 20%.
- The property must be owner occupied, with no more than two residential units.
Also read: Insured vs. uninsured mortgages
There are several other requirements in order to be approved for CMHC coverage, specifically. These requirements changed on July 1st, 2020 in response to the economic downturn and became much more stringent. However, in response to a massive loss in market share, these updated rules were then reversed on July 5, 2021. Currently, the following applies:
- Your minimum credit score must be 600 (down from the 680 stipulated in July 2020)
- You must have a Gross Debt Service ratio of less than 39% (up from 35% stipulated in July 2020)
- You must have a Total Debt Service ratio of less than 44% (up from 42% stipulated in July 2020)
- You must not borrow money for your down payment (this requirement is unchanged from July 2020)
It's important to note that private companies that also provide mortgage default insurance, such as Canada Guaranty, did not follow suit to make requirements more stringent, and, as a result, have become more popular with home buyers since CMHC updated its eligibility threshold (despite the CMHC having since reversed these stricter guidelines).
Mortgage default insurance rates (CMHC insurance rates)1
To determine which mortgage default insurance premium rate you have to pay, the first step is to calculate how much your down payment is as a percentage of your home’s purchase price. The chart below outlines the premium rates for each down payment scenario:
|Premium on Total Loan
|Premium on Increase to Loan Amount for Portability
|*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%
*These mortgages have a down payment of greater than 20%. While you won't be paying the mortgage default insurance premiums in this case, coverage is still available to your lender, and they will often take out mortgage default insurance on your mortgage anyway.
These same rates are charged by all three providers: CMHC, Sagen and Canada Guaranty. Keep in mind that you'll also need to pay provincial sales tax (PST) on your premiums if you live in Manitoba, Quebec, Ontario and Saskatchewan. PST can't be added to your mortgage, so you'll need to pay up front, in cash.
Mortgage default insurance calculation example:
Let's say you just purchased a home for $300,000 and made a $40,000 down payment. Your mortgage default insurance premium would be calculated as follows:
- $40,000 (down payment) ÷ $300,000 (home price)
= 13.33% (down payment percentage)
- $300,000 (home price) - $40,000 (down payment)
= $260,000 (mortgage before CMHC)
- $260,000 (mortgage before CMHC) × 3.10% (CMHC tax rate)
= $8,060 (CMHC insurance premium)
How do you pay mortgage default insurance?
Mortgage default insurance is financed through your mortgage. Unlike closing costs, such as legal fees and land transfer tax, it does not require a lump sum cash outlay at the time you purchase your home. Instead, your mortgage default insurance premium is added to your mortgage amount and paid off over the life of your loan. Continuing with the above example, the revised mortgage amount would be $260,000 + $8,060 = $268,060; this is how much you would need to borrow from your lender in order to purchase your home.
How to minimize mortgage default insurance
The only way to minimize your mortgage default insurance is by increasing your down payment as a percentage of your home price. To do this, you either have to increase the amount you put down or purchase a less expensive home. Examining the first option, you may want to consider additional sources for your down payment, such as a gift from a family member or, if you are a first-time home buyer, a tax-free withdrawal from your RRSP, as part of the RRSP Home Buyers' Plan. Starting in 2023, you are also able to use a new tax-sheltered account, called the Tax-Free First Home Savings Account.
Note that under the changes to CMHC underwriting on July 1st, 2020, you will not qualify for CMHC coverage if you borrow money for a down payment. If borrowing your down payment puts you over the 20% down payment threshold, however, you won't need mortgage default insurance at all.