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.
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Jamie David, Sr. Director of Marketing and Mortgages
Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan. Mortgage default insurance premiums are paid for in full by the borrower at the start of their mortgage.
Although mortgage default insurance costs home buyers 2.8% to 4.0% of their mortgage amount, it does allow Canadians who might not otherwise be able to purchase homes access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. 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 for insured mortgages is 25 years.
- If the purchase price is between $500,000 - $999,999, a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% of the remaining amount.
- Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% minimum down payment is required on these homes.
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:
|Loan-to-Value||Premium on Total Loan||Premium on Increase to Loan Amount for Portability|
|*Up to and including 65%||0.60%||0.60%|
|*Up to and including 75%||1.70%||5.90%|
|*Up to and including 80%||2.40%||6.05%|
|Up to and including 85%||2.80%||6.20%|
|Up to and including 90%||3.10%||6.25%|
|Up to and including 95%||4.00%||6.30%|
*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.
How do you calculate mortgage default insurance?
To understand how mortgage default insurance is calculated and paid for quickly, watch the video below. Scroll down further for more details on the calculations.
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 shelter, 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.