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CMHC Loan Insurance – How It Works and How it Can Be Improved

Last Updated on December 11th, 2018

by David Larock

When lenders receive applications from mortgage borrowers who have down payments of less than 20% (who are also known as high-ratio borrowers), they must secure high-ratio mortgage-default insurance from one of three insurers: CMHC, Genworth and Canada Guaranty. (CMHC is by far the biggest, so high-ratio default insurance is often loosely referred to CMHC insurance).

Every high-ratio mortgage application must pass through the insurer’s filter, and as such, they set the rules that every high-ratio borrower (and lender) must comply with. (In reality, because mortgage default insurance comes with a government guarantee, insurer policies are also heavily scrutinized by our Federal Ministry of Finance.)

High-ratio mortgages are held to tougher standards that are designed to ensure that banks do not expose their depositor’s money to undue loan risk. After all, if we worried that our bank might lose our chequing account money to bad mortgage loans, it would undermine our confidence in the entire banking system. And well, we can’t have that.

This lending structure helped us fare well during the global financial crises in 2008, and it has been held up to the world as a model to be copied. So kudos for that. But as with every system, it also has its drawbacks. For example, every lender offers the same high-ratio products using different names and different-coloured pamphlets.

Ideally, CMHC (which is government owned and run) would act as a ‘market maker’ to ensure a minimum standard for high-ratio borrowers. Then, its private-market competitors (Genworth and Canada Guranty) would augment CMHC’s offerings with more flexible solutions that find a balance between risk-based pricing and investor demand that ebbs and flow in response to market conditions. But we’re getting ahead of ourselves. Let’s start with the basics.

As mentioned above, if you want to buy a house with a down payment of less than 20% of the purchase price, you are required to buy insurance that protects the lender against loss if you default on your payments. (This coverage doesn’t relieve you of your debt obligation if you default, but it ensures that the lender is made whole.)

Thecanada mortgage rates amount you are charged increases as your down payment decreases, and your cost generally ranges from 1.7% to 4% of your mortgage amount.

You can roll the fee into your mortgage but you have to pay any associated provincial sales tax upfront, as part of your closing costs.

The default insurers have programs for self-employed applicants, new immigrants and a whole host of other groups (see links provided in the opening paragraph for further details).

Your mortgage loan insurance is fully transferable to a different lender if you find a better deal at renewal, and if you want to increase your original loan amount at some point in the future, you only have to pay an insurance fee on the additional amount borrowed (subject to qualification).

Now how can we make default insurance better?

CMHC is a crown corporation and it competes with Genworth and Canada Guaranty, which are privately owned.

In a perfect world, the private insurers toronto mortgage brokerwould be allowed to be more innovative and to offer borrowers more flexibility, but in reality, CMHC has discouraged this by matching every innovation made by Genworth and Canada Guaranty in order to protect its dominant market share in much the same way that a private company would.

Examples in recent years include stated income lending for self-employed borrowers, mortgages for new immigrants, and loans for borrowers with lower credit scores.

Unlike a private company, when CMHC copies a new-product innovation, they also commoditize the pricing. Then, with profit margins reduced for the private insurers, the attractiveness of taking on incremental risk diminishes. While on the surface that sounds like a good deal for consumers, in reality, it discourages innovation. After all, why would a private insurer spend time and effort coming up with a new product when it will just be copied and commoditized by the government-run hegemon?

Having a centralized policy for high-ratio underwriting risk has given the government no small amount of control over our residential market. Given the US example of what happens when lending runs amok, maybe that’s not entirely bad. Especially when you consider that since CMHC started assuming the risk for high-ratio mortgages, it has opened up home ownership to a huge swath of middle-class Canadians and was an important catalyst for the democratization of Canadian credit. Since that time (1954), our home ownership levels have been rising steadily and are now among the highest in the world.

It’s just too bad that CMHC’s influence also serves to discourage private-market innovation.

In the end, a more innovative default-insurance market that more fully embraces risk-based pricing is the ideal we should be shooting for. CMHC’s policies should establish a baseline standard, but then our private insurers should be left to findbest mortgage rates canada innovative ways to ensure that every willing investment dollar is matched with borrowers who need additional flexibility to qualify (and who are willing to pay more for the privilege).

Just like with any government-run market-making institution, CMHC should try to foster an environment where private-sector companies can innovate without being overwhelmed by their public-sector competition.

David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
93 Comments
  1. Dave,

    Here is a question for you. Why did they allow the 25% down to 20%?

    Also having 40year mortgages? Do you think this might be a factor to why housing prices are so high?

    Brian

  2. Hi Brian,
    The decision to increase the minimum loan-to-value required for a loan to qualify as a conventional deal (from 75% to 80%) was made after performing extensive stress-tests using historical data. The results showed that this subset of loans had been very low-risk in the event of a market downturn and based on those findings, the high-ratio bar was raised from 75% to 80%. I don’t think this change has materially contributed to higher prices because the mortgage loan insurance cost on a 75% loan was quite low and could be added to the mortgage balance.

    Conversely, I think the decision to offer 40 yr. amortization periods on mortgages definitely led to higher houses prices because it increased affordability (and interest costs) for borrowers. Fortunately, this product was only around for a brief period before CMHC pulled it.

  3. Ben permalink

    I have a mortgage insured with CMHC
    Question If I sell and buy a different home and still require mortgage insurance is it transferable to the new home, and pay premiums on the difference, or is it strart from anew losing my premiums from my first home.

  4. Hi Ben,
    You can port your existing policy, but if you are increasing the loan-to-value on the new property, it cannot exceed 90%.

    Also, if you are borrowing more money, CMHC will charge you a top-up premium on the additional amount.

    Hope that helps.
    Dave

  5. Hi Dave,

    Great read! Hard to find good info sometimes.

    Hope you can help me with something:

    My wife and I are planning to sell our apartment and our house and move closer to the city. Rather than purchase another home right away, we planned to sell both our properties now and rent for a little while and watch the market to see what it does.

    Both of our currently owned properties are CMHC insured. My question is: will we have to pay a third CMHC premium on the next property we buy if both our current properties are sold first?

    My understanding is that you can port CMHC insurance but can you hold on to it if for a time you own no property?

    The next property we buy will be worth more than the 2 we own now. Can 2 premiums be ported into one mortgage? If not for the money we would potentially lose, it might be worth our while to hang on to one or both of them until we are ready to buy the next and transfer the insurance over.

    Thanks in advance,

    Mike.

  6. Hi Mike,
    Thanks for your email. CMHC will allow their insurance coverage to remain in force as long as one of your exisiting lenders lets you port their mortgage to the new property. In other words, your existing CMHC insurance policies must remain tied to the two mortgages you have now to remain valid.

    I can’t envision any scenario where you would be able to port two separate mortgages to one new property (because one lender would have to agree to give up their first position and take a second position on title instead) so my advice is to try to port the larger of the two. Keep in mind that lenders will generally only allow a few months between your buy/sell dates so make sure you know how big your timing window really is.

    Best regards,
    Dave

  7. Hi Dave,

    Great article. I’m sure you’ve heard this before but I cant find an answer to this anywhere!! I purchased an investment condo in early 2010 for @ $400k (just put 5% down/30 yr) then sold it in late 2011…the bank seem to have deducted ALL the CMHC insurance amount out of the first years payments (ie all $10k or so)…so very little principal was paid down in yr 1/2. Any ideas why CMHC/the bank can do this? Given I repaid the full original principal shouldn’t one get a CMHC refund for the remaining 28 yrs of the policy? ie @$9k?

    if not – why not and where does the money go?? 🙂

    Cheers!

    K.

  8. Hi Kyle,
    Happy to help.
    CMHC charges a one-time upfront fee when you first get your mortgage so it doesn’t matter if you own the house for 2 years or 30 years, the fee is the same.

    The longer you keep that insurance policy in place, the cheaper it gets – and doing that isn’t as hard as it might sound because you can port both your mortgage and your CMHC policy to a different property (subject to standard lender guidelines). You can also swtich lenders at renewal without voiding your coverage, so there are lots of times when you don’t have to just write-off the cost and start over.

    As for where the moeny goes, it goes into a pool of capital that is used to reimburse lenders who experience losses on borrower defaults. Any excess profit (when times are good and defaults are low) is eventually remitted back into the public purse.

    Best regards,
    Dave

  9. Matt permalink

    Hi Dave,

    I would like to know if one person can have their name on 2 cmhc insured mortgages, for instance, my wife and I are buying 2 separate houses and we both need a co-signer to qualify for the amounts. Her brother in law is co-signing for her and we were wondering if she can co-sign for me. Thanks.

  10. Hi Matt,
    CMHC will allow you to have more than one insured mortgage as long as you qualify.

    Not sure how it will work in your case though because if your wife needs your brother-in-law as a co-signor on mortgage #1 then I don’t see how she could then add sufficent strength to mortgage #2.

    Whoever is handling your files should be able to wade through the details with you though. Just be sure to ask lots of questions before you waive any financing conditions.

    Dave

  11. Deb permalink

    Hi Dave, I have currently had a home renovated and ready to sell, found a buyer for the home, but when the Mortgage Broker was trying to finalize things, she discovered that the property behind my house has not been disclosed as what they plan to use it for. Originally it was going to be an industrial area and a petition went around and this prevented anything further with the property behind. Now the buyer of my home is required to put 20% down. I have lost the sale of my home. Its because CHMC will not insure the home due to the property behind not being disclosed. I am very discouraged and confused. Now some how I need to re-mortgage the house and not sure I will even be able too. Any advice.

  12. Hi Shaddes,
    Are you remortgaging the house for yourself or trying to do so for the buyer?
    Dave

  13. kris permalink

    Hi there,
    Question is i am looking at selling my home and it will be early but i would like to pay the 3000 dollar penalty because it is worth it the way interest rates are, If i pay the one out and get a new one at a better rate for my new place am i going to be hit with cmhc charges on the new place again?

  14. Hi Kris,

    To be clear, it sounds like you want to break your existing mortgage, sell your existing property and then buy a new property?

    If you sell your house and break your current mortgage then your mortgage insurance will be voided (they are tied together). The only way to avoid this would be to port your existing mortgage to the new property and then pay the penatly and switch to a new lender. That said, this would take some stick handling (I am assuming you may want change your mortgage balance when you buy the new property as well?) so you should seek out an experienced mortgage expert who can handle a deal with a lot of moving parts if you want to go that route.
    Good luck!
    Dave

  15. Joseph permalink

    Hi Dave great article my question if the CMHC pays the lender incase of a default then what does the lender to with the foreclosed property or with the money what lender takes over

  16. Hi Joseph,

    When a borrower defaults, in most provinces the lender sells the property under power of sale. If there is a shortfall, CMHC then remiburses the lender for the amount of lost mortgage principal (but the lender still bears legal and adminstrative costs).

    Best regards,
    Dave

  17. Bryan Dunne permalink

    Hi Dave – thanks for all the info – you have touched on my questions, which I have been trying to get answered for quite a while, but not quite – its really very specific, let me use an example – I pay in full (say well over $10K) for 40 year amortized mortgage default insurance, presumably to cover default for that whole period – if I don’t sell the house or otherwise pay off the mortgage for 40 years I have paid in full in advance – I then sell the house in 2 years – to simplify this question I am not switching current mortgage to a mortgage with another lender, I am not porting the mortgage to another house with the same or different lender (at a higher value, which is required, and then there is a surcharge), and its also not portable if its not “owner-occupied”, I believe – I am selling a non-principal residence property – so to make the question obvious there may be 10 more mortgages (all default-insured with CMHC) in the next 20 years – each & everyone, including myself, pays for the full premium for the full amortization period and only is a risk for 2 years – I have paid for something for 40 years that was needed for 2 years – I’d like to get that premium back, in full, thanks – if and when I get another mortgage with 20% or less down, I’ll gladly pay a premium again

  18. Hi Bryan,
    Unless you port your existing mortgage over to a new property the high-ratio insurance policy you paid for will be cancelled. Those are simply the rules of the game.
    Best,
    Dave

  19. Chris permalink

    Is the 20% on the purchase price only or the total amount of the mortgage taken out. For example, if I ask for more money than the purchase price to do renovations.

  20. Hi Chris,

    Your down payment is normally based on the purchase price, but if you are borrowing under a purchase + improvements program then the value of the renovations is added to the purchase price and your down payment is based on that combined amount.
    Best regards,
    Dave

  21. Tim permalink

    Hi Dave,

    We want to port our existing mortgage and purchase a new property (at a higher price). When we add to our existing mortgage, is it possible to borrow extra for renovations (i.e. can we apply for a purchase plus improvements loan when we are adding to an exisitng mortgage?) Thanks in advance.

  22. Maria permalink

    Hi Dave, Question for you is if we Port our Mortgage and had CMHC No Down payment do we have to apply (Pay) another down payment when we Port our Mortgage to our new home? Also will we be able to Port our Mortgage if our credit history has changed?

  23. Hi Maria,

    The CMHC Down Payment program is no longer offered and as such, you will have to make a minimum down payment of 5% if you want to port this mortgage to a new property.

    On a port you typically have to requalify (the same as you would if you were doing a new mortgage).

    Best regards,
    Dave

  24. Hi Tim,
    Yes. If the lender approves your port (and your application for Purchase Plus Improvements), you can port your existing CMHC mortgage to a new property and add a CMHC Purchase Plus Improvements top-up to it. You would simply pay CMHC’s top-up premium on the additional amount you were borrowing.

    Best regards,
    Dave

  25. Bob Mills permalink

    Hi there,

    We bought are buying a house for the first time. It is in a rural setting on a pristine, spring fed lake that is crystal clear. We put down 20% to avoid the CMHC insurance, but found that we were asked to buy insurance anyway due to the fact that the house has no well. Where we live, it would be ridiculous to have a well when the lake has such pure water, and anyone would see that there is more value in having lake water rather than well water. What do you think?

    ~Bob

  26. Shawn permalink

    Hey Dave

    Just lost my property in a POS proceeding due to mortgage default, however there was a $45k shortfall in the sale, in this case since originally the mortgage was insured by CMHC, is the short fall payable by CMHC?

    Thanks

    Shawn

  27. Hi Shawn,
    CMHC will reimburse the lender for the shortfall but they will still seek to recover that amount from you. In essense then, instead of owing the lender the extra $45k you will now owe that money to CMHC.

    Best,
    Dave

  28. scott permalink

    Hi Dave, thanks very much, great article just the answers i was looking for in the comments regarding porting. keep up the good work!

  29. Thanks for your note Scott. Much appreciated.
    Dave

  30. Daniel permalink

    Hi Dave,

    I own one property currently with high ratio insurance, I believe it is through Genworth. I would like to purchase a second property as an investment also with high ratio insurance. I was told I need 20% down for an investment property by the bank. However, I was also told if the second property is purchased for owner occupancy then I am allowed to purchase a second property with insurance provided that I move into it! Is this true? If so how many times can you do this.

    I cannot find this info on the net anywhere,

    Thanks,
    Daniel

  31. Hi Daniel,
    You can buy a second property under the scenario you mention but it must be ownder-occupied can only be a single-unit property. Also, you can only do this once.
    Best,
    Dave

  32. Tanya permalink

    Just would like clarification on your response Dave if CMHC pays the lender the shortfall, but CMHS will come after your for the amount that they paid to the lender, what is the purpose of paying CMHS premium? Your no further a head gosh for bid if you land on hard times and you lose your home.

  33. Hi Tanya,

    CMHC covers a lender against loss in cases where they have to seize and sell a property for less than the mortgage amount they have registered against it. Thus, high-ratio insurance covers the lender, not the borrower (and CMHC regualrly pursues borrowers to recover any shortfall).

    Borrowers can obtain mortgage insurance that covers them in cases of illness, accident or death, but this insurance is entirely seperate from the high-ratio default insurance that is provided by CMHC and its competitors.

    In summary, borrowers pay the cost, but the insurance protects the lender.

    Best,
    Dave

  34. Tom permalink

    It sounds like a scam. For most of the rest of us, when we require financial protection we are the ones that pay for the insurance ourselves. But for some reason, these institutions feel like they can pass the buck to the poor guy who is already trying to just make ends meet, and now they have to pay the insurance rates for the rich banks in order to get a loan from them. And as an ultimate kick in the groin…the insurance that your paying for only protects the banks and does nothing but allows the bank a collective sigh of relief when lending you the money. So as long as the rich stay rich…all is well!

  35. Hi Tom,

    I would respectfully disagree with your view. Without high-ratio mortgage insurance borrowers who are putting down less than 20% would have to pay rates that would be a multiple of those that are widely available today. High-ratio insurance is effectively a government-backed subsidy that gives mortgage borrowers with small down payments access to ultra-low mortgage rates. For my money, it is tax payers who don’t own homes who have the real beef because they are effectively backing these loans with their future tax payments and they get nothing in the bargain!

    Best,
    Dave

  36. Justin permalink

    Dave,

    We are purchasing a new home after selling our place that we’ve been in for just under 6 years. We needed to pay the CMHC fee the first time around and will be porting and increasing our mortgage to the new home. Our new purchase price and down payment will be in the 20% range and under the new rules it says we will need to pay the CMHC again. Can you clarify?

  37. Hi Justin,

    If you are putting down 20% or more on the purchase of your new home a high-ratio insurance fee should not be required.

    If you want to contact me and provide more information I can help you evaluate your situation in detail.

    Best,
    Dave

  38. mike permalink

    Just wondering, say house prices drop by 20%. If you have a CMHC insured mortgage with a company like Genworth, and your house goes “underwater”, what happens? Genworth does not suffer because CMHC pays the mortgage out, so they get their investment back and likely their business stays solvent but maybe not as profitable. So, who suffers other than the defaulted home owner once CMHC decides to try to get their money back?
    Mike

  39. Hi Mike,

    If house prices drop it has no impact on the borrower’s existing mortgage as long as he/she continues to pay as agreed. If the borrower defaults and the house is sold for less then the mortgage amount, then the insurer (CMHC, Genworth or Canada Guaranty) writes a cheque to make the lender whole and then pursues the borrower for the amount of the loss.

    In terms of who suffers, it is primarily the borrower, but to be fair, in this case they will have failed to meet their obligation and will have thus defaulted on the terms of their loan agreement.

    FYI – CMHC and Genworth are both insurers and they compete against each other, so there is no scenario where Genworth would have a claim that would be paid out by CMHC.

    Best,
    Dave

  40. I have heard that CHMC is now only allowing insurance on one property. I have a client who has a non CHMC mortgage on one property but wants to purchase a second home. Would they be able to qualify for 5% down on the second property?

    Thanks in advance for your help.

  41. Hi Kent,
    While it is true that borrowers can only have one CMHC-insured property at a time, Genworth will still allow borrowers to have more than one insured property, so there are options available to your client.
    Best,
    Dave

  42. Al Vandebeek permalink

    Dave, can I have the cmhc insurance payment for the duration of the mortgage ex:30 yrs.
    Thank you, AL

  43. Hi Al,
    Yes. You can roll the high-ratio insurance fee into the mortgage and pay it off over the life of your amortization period.
    Best,
    Dave

  44. Al Vandebeek permalink

    Hi Dave ,I have a MTG. on one property without CMHC-INSURED but I’m in the process of getting a new MORTGAGE for a new property can I transfer the old MTG into the new one with CMHC-INSURED with adequate DP.
    what would be the NO reason if any.
    Thank you for your help.
    Al

  45. Rob permalink

    What is the smallest mortgage amount that can be insured. I’m thinking small home on small lot ….

  46. Travis permalink

    Hi Dave.
    My question is, I’m fed up with my bank, they arnt on my team, so I approached a different bank. I only have 120k remaining on my mortgage, and wanna consolidate my loans and line of creadits, jumping up to 185k roughly. I paid 175k for the property 10 years ago. So we ha the property re appraised lasts week, and it came in at 270k I’m taking the new loan out over 15 years and keeping my mortgage payment the same…. So I won’t have other loan payments and line of credit payments….. Cutting my monthly payments in half…. Just extending my mortgage by 5more years(15 years left)
    My question is, the bank has me going through cmhc for this new loan…… Is this nessessary? When can cmhc be whipped off my mortgage?
    Thanks for your time
    Travis

  47. Hi Travis,

    As long as your loan-to-value on the new loan is less than 80%, which it has to be in order to refinance your mortgage, the new bank should not be requiring you to go through CMHC. They may prefer that you bear this additional cost (on the new money being advanced) because it lowers their potential risk, but to be clear, this is not a requirement.

    If that is what you are being told then unfortunately you are being misled.

    If you are prepared to switch to a different lender then feel free to contact me. I am confident that I can find one that would not include this “requirement”.

    Best,
    Dave

  48. Grant Kealey permalink

    Hi Dave,
    In November 2012, I purchased my current house for 480K, and put down 15%. I paid a 5.6K CMHC premium (it was a port increase, so I payed 4.0% on the difference where my previous mortgage was about 265K). I am now in the process of porting my mortgage to a cheaper house at 292K, and only putting down 5%. My mortgage company has come back and said that CMHC is asking for the full 8.7K premium on the new house, giving me no credit for the 5.6K premium I’ve already paid on my current mortgage. I spoke to my mortgage company and I asked them what formula CMHC uses to determine whether or not a previously paid CMHC premium is portable to a new house and they really couldn’t give me an answer. I found this CMHC web page but it is rather cryptic to me.

  49. Hi Grant,
    For a specific case such as yours I suggest that you contact CMHC and put the question to them directly.
    Best,
    Dave

  50. Ro Christian permalink

    Does CMHC apply on renewing a mortgage? I took it when purchased my first home and wondering if I will continue to have to pay CMHC once it is renewed. Thank you for your guidance.

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