What Is CMHC Insurance?
CMHC mortgage insurance, formally known as mortgage default insurance, is a product that protects lenders — not borrowers — against the risk of mortgage default. It is required by federal law for all mortgages with a loan-to-value ratio above 80%, meaning for any home purchase where the buyer’s down payment is less than 20% of the purchase price.
Despite being for the lender’s benefit, the cost of CMHC insurance is borne by the borrower. The premium is calculated as a percentage of the insured mortgage amount and is typically added to the total mortgage balance and amortized over the loan’s term, meaning borrowers pay interest on the premium as well as the premium itself.
Who Provides Mortgage Insurance?
Mortgage default insurance in Canada is provided by three approved insurers: Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Financial), and Canada Guaranty. CMHC is a federal Crown corporation, while Sagen and Canada Guaranty are private insurers. The premiums charged by all three are very similar, as they are set within a regulated framework.
How Much Does It Cost?
The premium for CMHC insurance ranges from 2.8% to 4.0% of the insured mortgage amount, depending on the loan-to-value ratio. For a home purchased at $500,000 with a 5% down payment ($25,000), the insured mortgage amount is $475,000, and the CMHC premium at the 4.0% rate would be $19,000. This $19,000 is added to the mortgage balance, bringing the total insured mortgage to $494,000.
For a 10% down payment on the same $500,000 purchase, the premium drops to 3.1%, for a premium of approximately $14,025. For a 15% down payment, the premium is 2.8%, for approximately $11,900. These are significant costs that buyers should factor into their total purchase budget.
Can You Avoid CMHC Insurance?
The only way to avoid CMHC insurance is to provide a down payment of at least 20% of the purchase price, which qualifies the mortgage as a conventional (uninsured) mortgage. For homes priced at $1 million or more, CMHC insurance is not available regardless of down payment size, meaning buyers of high-value properties must provide a minimum 20% down payment.
