If you know anything about the Canadian mortgage market, you have likely heard of CMHC mortgage insurance for those with a down payment of less than 20 percent. We have the best CMHC mortgage calculator in Canada to help you figure out how much you are likely to be charged for mortgage insurance. This is because we have a full overview of the CMHC insurance process and an easy-to-use tool that provides you the information you seek quickly and conveniently. Read this informative guide, and plug the appropriate figures into our CMHC insurance calculator to estimate your CMHC mortgage insurance premium.
The Basics of CMHC Mortgage Insurance
Traditionally, lenders in Canada have asked home buyers to put a 20 percent down payment on their mortgage. Individuals who have such a down payment are typically low-risk borrowers for lenders and highly unlikely to default on their loans. To compensate for higher risk borrowers without a 20 percent down payment, Canadian lenders could charge these borrowers a higher interest rate than those who can put 20 percent down. Instead, most opt to extend loans to borrowers who lack a 20 percent down payment without charging them a higher interest rate by extending the option of CMHC mortgage insurance.
Mortgage insurance from CMHC is designed to protect the lender in the event that a borrower defaults on his or her mortgage. It is typically required on all loans that have been closed with a down payment of less than 20 percent, but in any case, most Canadian lenders require you to put at least 5 percent down on your home to qualify for a loan.
The Benefits of CMHC Mortgage Insurance
The main benefit of mortgage insurance through CMHC is that it enables home buyers to get into a home even if they do not have a 20 percent down payment. While many people can afford to wait many years to buy a home, saving up the preferred 20 percent down payment in the meantime, some people must get into a home as soon as possible because their family is growing, they have just moved to a new city or for other reasons. Without mortgage insurance, many lenders would be unwilling to offer home financing to such buyers.
Another major benefit of Canadian mortgage insurance has already been mentioned briefly. Mortgage insurance allows home buyers without a 20 percent down payment to enjoy the same low interest rates offered to those with a down payment of 20 percent or more. Your final loan total will be greater because of mortgage insurance premiums; nevertheless, this higher principal total is more advantageous than a higher interest rate because it means you will ultimately pay less interest to your lender over time.
Paying for CMHC Mortgage Insurance
Your CMHC mortgage insurance premium is determined based on your mortgage amount. Depending on the amount you actually put down and the length of your amortization period, your lender calculates a certain percentage of the mortgage needed to finance your home and usually adds it to your principal balance. That means you do not have to bring money for your mortgage insurance premiums to closing as part of your closing costs.
Calculating Your CMHC Mortgage Insurance Cost
Before applying for a mortgage, it is good to calculate the mortgage insurance premium you will be charged. That way, you will have a far better idea of the total loan you will need to pay for your home. Our CMHC mortgage insurance calculator allows you to easily figure your mortgage insurance premium, but you can also do the calculations on your own. Follow these steps to figure out your mortgage insurance premium:
1. Figure out your down payment percentage by taking the total you have saved for your down payment and dividing it by your home purchase price.
2. Determine the length of the amortization period that you require to make your loan payments affordable.
3. Based on your down payment percentage and length of your amortization period, find the percentage you must pay for your mortgage insurance premium in the next section below.
4. Subtract your down payment from your home purchase price to figure out the mortgage you require.
5. Multiply your required mortgage sum by the percentage you have figured for your mortgage insurance premium. The total that results will be added to your mortgage to determine your final loan amount.
CMHC Mortgage Insurance Premiums
On standard loans that are amortized for twenty-five years, the percentage you pay for mortgage insurance is:
• 1 percent on loans with a down payment of >15–20 percent
• 1.75 percent on loans with a down payment of >10–15 percent
• 2 percent on loans with a down payment of >5–10 percent
• 2.75 percent on loans with a down payment of 5 percent
Self-employed individuals who cannot verify their income will pay a higher CMHC premium than those who work for others because lenders consider self-employed persons to be bigger financial risks. Here is what you will pay for mortgage insurance in Canada if you are self-employed:
• 1.64 percent on loans with a down payment of >15–20 percent
• 2.9 percent on loans with a down payment of >10–15 percent
• 4.75 percent on loans with a down payment of >5–10 percent
* CMHC coverage is unavailable for self-employed people who have a down payment of only 5 percent
* If your loan amortization period is longer than twenty-five years, add 0.2 percent to your premium charge for each five-year segment or portion thereof after twenty-five years and up to the end of your longer amortization.
Calculate Your CMHC Mortgage Insurance Premium
It has never been easier to estimate of your CMHC mortgage insurance premium. Fill in the calculator on this page to figure your likely premium.