July 21, 2020

Everything You Need To Know About CMHC If You’re A First-Time Buyer

Buying a home as a first-time buyer is incredibly overwhelming. There are so many questions about buying your first home – and that’s without even thinking of scraping together a deposit. 

If you don’t have your 20% down payment ready now, don’t worry! There is a way you can still buy your house – with the help of mortgage default insurance. 

This insurance allows you to put a smaller down payment on a house, anywhere between 5% and 19.99%. 

You’ve probably got a few questions about CMHC and if it’s suitable for you, so we’ve answered the most common questions about it for you below.

What is CMHC?

CMHC or Canadian Mortgage Housing Corporation is a government financial institution that guarantees a loan with the bank at a premium. It enables you to buy a home with just a 5% down payment.

Basically, it’s insurance that allows you to reduce the needed amount you need to save for a deposit. There are other institutions that allow you to take out this type of insurance like Genworth Financial and Canada Guaranty, but CMHC is the most common. 

Mortgage default insurance does cost homebuyers between 2.8% – 4% of their full mortgage amount, but it helps Canadians who might not have been able to purchase a home get access to the real estate market.

What do you need to qualify for CMHC?

There are a few requirements that you’ll need to meet before you can apply for mortgage default insurance.

  • 25 years is the maximum amortization for insured mortgages.
  • A higher down payment is required if the price of the property is between $500,000 – $999,999. The minimum down payment is 5% of the first $500,000 of the property price and then increases to 10% for the remaining.
  • Homes that are for sale for more than $1 million do not qualify for the mortgage default insurance. (20% down payment will be required on these homes).

From the 1st of July 2020, a few extra requirements were added. So, to be eligible for CMHC you need to:

  • Have a Gross Debt Service ratio less than 35
  • Have a Total Debt Service ratio less than 42
  • Have a credit score of at least 680
  • Your down payment money must not be borrowed

You can see a full list of the requirements on the CMHC website. 

How can you calculate your CMHC?

The easiest way to calculate your CMHC is with a mortgage default insurance calculator. It’ll give you an idea of how much CMHC insurance will cost you on your mortgage. 

Simply put in the asking price and the amount you can afford for down payment. From this information, it’ll estimate your mortgage insurance premium. 

You can also calculate your CMHC manually.

Let’s say that the home you want to purchase is $300,000 and you’ve made a down payment of $40,000. Here’s how you would calculate your mortgage default insurance premium for these amounts.

Step 1: Calculate your down payment as a percentage of the full price. 

$40,000 divided by $300,000 = 13.33%

Step 2: Calculate the amount you need for the mortgage

$300,000 – $40,000 = $260,000

Step 3: Calculate the insurance premium for your mortgage

$260,000 x 3.10%* = $8,060

*This is the insurance rate for this particular CMHC calculation. It’s based on the percentage of down payment you paid towards the price of your house. 

How do you pay for CMHC?

Mortgage default insurance is financed through your mortgage, and unlike legal fees you don’t need to hand over a lump sum when you purchase your home.

Instead, your mortgage default insurance premium is added to your mortgage amount and paid off alongside your loan. 

For example, if we use the same figures as above the revised mortgage amount would be $260,000 + $8,060 (the insurance premium) = $268,060. So, this is how much you’ll need to borrow from your lender so you can purchase your home. 

How has COVID-19 affected the property market?

Now is the perfect time to purchase a house as interest rates are the lowest they’ve ever been due to the pandemic. 

It’s a great time to be a first-time buyer, especially when you can take advantage of CMHC and get the house of your dreams for a lower price than usual. 

CMHC has estimated that the price of housing will fall anywhere between 9-18% from where they were before the pandemic began. There might be a little recovery in 2021 but they don’t think things will be back to how they were pre-Covid until 2022.

CMHC Frequently Asked Questions

Here are a few of the most popular questions about CMHC and mortgage default insurance to help you get all the information you need. Can’t find the answer you’re looking for? Give us a call on 780-645-4535 and we’ll do our best to help you.

How long does CMHC take to approve an application?
The average turnaround time can vary between 2-5 business days. It may take longer, depending on how complex your file is. 
Is there a difference between CMHC insurance and mortgage life insurance?
Yes. CMHC insurance is required by you and is for the benefit of the lender only. Mortgage life insurance is for the benefit of the borrower in case of death or disability in the future. 
Do I talk to CMHC directly about my application?
No, you talk to your lender’s underwriter as CMHC does not have a public channel.  
How long do you pay CMHC fees?
The maximum amortization for insured mortgages is 25 years. 
How much is CMHC insurance per month?
This all depends on your insurance premium rates, which range from 1.8% to 4%. Your insurance premium rate is calculated based on how much of a down payment you initially paid. 

Are you thinking about how CMHC could help you get to your new home faster? 

Well, we want to help you get the house of your dreams – contact your local St. Paul or Bonnyville CENTURY 21 agent and let’s find the right home for you

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