What is Mortgage Loan Insurance?
When you need a mortgage loan that is more than 80% of the purchase price of your home, you must buy mortgage loan insurance. It protects the lender and, by law, most Canadian lending institutions require it. CMHC stands for Canada Mortgage & Housing Corporation. A private insurer is Genworth, formerly known as G.E.
Having mortgage loan insurance means that if you, the borrower, default on your mortgage, the lender is paid back by the insurer - CMHC or a Genworth company. With the risk of losing their money removed, lenders have the confidence to make mortgage loans to new and repeat homebuyers of up to 100% of the purchase price of the home.
What does Mortgage Loan Insurance cost?
Mortgage loan insurance premiums range from O.5% - 2.75% of the amount of your loan. Non income qualifier mortgages & extended amortization mortgage do have higher insurance premiums.
The premium can be added to you mortgage loan and paid off as part of your regular mortgage payments or paid off in a lump sum at the time of purchase to save interest charges on the premium itself.
CMHC Premium Rates and Calculations
CMHC's insurance fees are based on a sliding scale dependant upon your loan to value ratio. The higher the loan to value ratio, the higher the insurance premium will be. CMHC fees are added on to the mortgage amount.
Below are the various rates charged:
Loan To Value Fee
Up to & incl. 65% .50%
Up to & incl. 75% .65%
Up to & incl. 80% 1.00%
Up to & incl. 85% 1.75%
Up to & incl. 90% 2.00%
Up to & incl. 95% 2.75%
Examples
a) Purchase price = $250,000.
Less 5% down payment $ 12,500.
Amount borrowed $237,500.
Insurance fee payable is:
$237,500. x 2.75% = $6531.25
b) Purchase price = $500,000.
10% down payment $ 50,000.
Amount borrowed $450,000.
Insurance fee payable is:
$450,000. x 2.0% = $9,000.00
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