What is CMHC

Canada MortgageCMHC was initially set up after World War 2 to assist returning war veterans find housing.  Its mandate since then has been expanded to assist in housing for all Canadians.  While best known as a government agency providing insurance so that people with less than a 20% down payment can purchase a home, it also provides support to Canadians in housing need and offers housing research and advice to Canadian Governments, consumers and the housing industry.

Advantages and Disadvantages to having an insured mortgage

Anyone purchasing a home with less than a 20% down payment must purchase mortgage default insurance.  It is unlikely that mortgage lenders would provide mortgages to individuals with low down payments without some sort of insurance against non-payment.  Three companies in Canada offer the product.  CMHC is a crown corporation, the other providers are privately owned and are Sagen (previously Genworth) and Canada Guaranty.  The benefit is primarily for the mortgage provider, but all three insurers do provide programs for clients who are experiencing financial hardship.  Not all insurers are created equal either.  CMHC has much stricter qualification requirements, and different insurers provide different borrowing solutions that lenders can opt into.  An example of that would be a product which allows the down payment to be borrowed.

How does it work

Mortgage insurance is purchased upfront and is included in the mortgage balance.  The premium is based on down payment and is a percentage of the mortgage amount.  For example, a 5 – 10% down payment would command a 4% premium, 10 – 15% a 3.1% premium and 15 – 20% a 2.8% premium.  Mortgage rates are generally cheaper for insured mortgages but that difference in rate is not enough to justify insuring a mortgage that does not need to be insured.  There are situations where downpayments of greater than 20% require insurance but those are rare.  In the even that the mortgage goes into default the insurer pays the lender what is owed as long as the file met all paperwork requirements at the time of funding.

The bottom line is that CMHC has helped many Canadians, particularly first time home buyers, purchase a home!!

Source: Karen Lemieux, Mortgage Brokers Ottawa

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