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CMHC and the Mortgage Industry
Mortgage default insurance is an insurance policy between the insurer and Lender. If a loan is insured, the policy will compensate the Lender for losses suffered ie if the Borrower goes into default and a Power of Sale ensues, the debts can be assigned to the insurer, who pays out the Lender and can take legal action against the Borrower to recover payments.
The Canada Mortgage and Housing Corporation (CMHC) is a Crown Corporation that has existed since 1954, and was established through the National Housing Act to increase the supply of houses to keep up with sharply increasing family formation and immigration. CMHC is a provider of mortgage default insurance to Lenders in Canada.
The use of mortgage default insurance is mandatory for mortgages in which the total loans on a property compared to that property’s appraised value (commonly known as the LTV) are greater than 80% and the mortgage is issued by a federally regulated bank. The LTV can be calculated by dividing the total loan(s) against a property by the property’s value, and multiplying this amount by 100%. Mortgages with an LTV of 80% or greater are referred to as high ratio mortgages, while those below 80% are referred to as conventional mortgages.
With mortgage default insurance, Lenders can make loans in excess of 80% LTV and have recourse if the Borrower is in default to recover losses through insurance. Borrowers can obtain high ratio mortgages with favourable terms and interest rates.
The insurance premium is charged to the Lender, who usually passes it on to the Borrower. This premium can be paid as one lump sum, but is usually added to the total loan amount (capitalized). It should be noted that the CMHC premium is not counted towards the total LTV of a loan scenario.
Overview of Current CMHC Programs:
- CMHC Refinance
– High Ratio refinances are no longer available.
- CMHC Standard Purchase
– Borrowers who have a traditional source of down payment, approved Lenders can offer CMHC insured financing up to 95% of a home’s value on purchase transactions. Cash back options are also available.
- CMHC Self-Employed Borrowers
– For self-employed Borrowers with verifiable income.
- CMHC Self-Employed Simplified
– For self-employed Borrowers with stated income. These Borrowers with a proven track record of managing their debt and a maximum of 2 years self-employed are eligible to obtain a CMHC-insured mortgage.
- CMHC 1-4 Unit Rental Properties
– Qualified investors can purchase a 1-4 unit rental property with a minimum of 20% down. Investors interested in refinancing can obtain financing of up to 80% of the property’s value. Although these mortgages are conventional, some lenders will still insure rental mortgages through CMHC & a premium will be charged. (I have access to other lenders who may consider 85% on a rental, without going through CMHC)
- CMHC Portability
– Allows repeat users to save money by shifting their CMHC-insured mortgage loan from an existing home to a new home, and reducing or eliminating the premium on a newly-insured loan.
- CMHC Improvement
– Offers greater choice to borrowers who are building new homes or who want to undertake small or large scale improvements to existing homes.
- CMHC Newcomer
– Provides newcomers to Canada, with permanent or non-permanent residence status, access, to CMHC mortgage loan insurance products through Approved Lenders.
- CMHC Green Home
– Provides mortgage loan insurance for the purchase of an energy-efficient home or to make energy-efficient improvements to an existing home. Borrowers may be eligible for extended amortization without a premium surcharge and a 10 per cent mortgage insurance premium refund.
- CMHC Second Home
– Gives borrowers with high ratio financing a chance to buy or refinance a second home using any CMHC homeowner product, without additional underwriting restrictions or premiums. Purchases can be done with as little as 5% down. The existing property cannot be insured with CMHC.
- CMHC Chattel Insurance
– Assists the financing of owner-occupied manufactured or floating homes where a traditional real estate mortgage may not be possible.
- CMHC Self-Directed RRSPs
– Insures Registered Retirement Savings Plan- (RRSP) or Registered Retirement Income Fund (RRIF)-funded homeownership mortgages for the purchase or refinance of new or existing owner-borrower occupied properties.
For more information on CMHC’s Homeowner products and policies contact us at 1-877-336-3545 and we will be happy to get you that information.
The chart below illustrates the premiums that CMHC charges for new loans as well as increases on the amount of a loan being refinanced or ported to a Borrower’s new home:
Loan to Value
Premium on Total Loan
Premium on Increase to Loan Amount for Portability and Refinance
|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%||3.6%||
|90.01% to 95% Non-Traditional Down Payment||3.35%||–|
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