Hybrids – The Safe Mortgage
June 15, 2010Closing Costs – The Stomach Punch of the Home Buying Process
June 29, 2010When 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.)
The
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 
would 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 find
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.
93 Comments
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
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.
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.
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
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.
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
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.
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
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.
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
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.
Hi Shaddes,
Are you remortgaging the house for yourself or trying to do so for the buyer?
Dave
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?
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
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
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
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
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
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.
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
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.
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
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?
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
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
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
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
Hi Dave, thanks very much, great article just the answers i was looking for in the comments regarding porting. keep up the good work!
Thanks for your note Scott. Much appreciated.
Dave
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
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
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.
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
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!
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
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?
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
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
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
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.
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
Dave, can I have the cmhc insurance payment for the duration of the mortgage ex:30 yrs.
Thank you, AL
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
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
What is the smallest mortgage amount that can be insured. I’m thinking small home on small lot ….
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
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
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.
Hi Grant,
For a specific case such as yours I suggest that you contact CMHC and put the question to them directly.
Best,
Dave
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.
Hi Ro,
The CMHC fee is a one-shot deal as long as you aren’t adding to your mortgage at renewal, even if you decide to switch lenders.
Best,
Dave
During the course of the mortgage can you pay off the CMHC fee in a lump some instead of on your mortgage each month.
Hi Chris,
The high-ratio insurance fee is rolled in to your mortgage unless you pay the balance upfront (which almost no one does).
While you can’t specifically pay off the fee, any good mortgage allows lump-sum payments and this will enable you to make a prepayment that is equivalent to the fee charged, which achieves the same end.
Best,
Dave
If a lump sum of 10%is made in year 2 and year 3, making the mortgage low-risk ratio, will cmhc premium be reimbursed
Hi Yann,
The premium is charged as a one-time upfront fee and is not reimbursed based on future prepayments.
Best,
Dave
Hi I am selling my house and buying a new one, I payed CMHC on 234.000 put down 5%. I am buying a new one for 400,000 And have Equity of around 40,000 owing around 210,000. Do I have to but down 80,000 on my new house to not pay CmHc or do I only have to put down 20% of the top up money on am boring
Thanks josh
Hi Josh,
If you want to avoid paying any higher-ratio insurance premium you will have to put down 20% of the full purchase price of the new property. That said, if you are putting down less than 20% you should be able to port your existing insurance policy over to your new property, and if you do this, you would only have to pay a “top-up” insurance premium on the additional amount you need to borrow.
Best regards,
Dave
Hi David,
I just bought a house in Nov/16 and had to get CMHC Loan Insurance. Will I have to pay for this insurance until my mortgage is paid in full? If so does the premium that I pay decease as my mortgage is paid off?
Right now I pay about $2288.00 a year, so in 5 years when I go to renew my mortgage will this decease?
Thank you Dave
Hi Morgan,
The high-ratio insurance fee is a one-time fee that typically gets rolled in to your mortgage balance at the time of funding (unless you choose to pay it with cash upfront).
When you renew your mortgage in five years, if rates are the same as they are today your payment will go down because you will be starting a new term with a lower mortgage balance.
Best regards,
Dave
Is CMHC required for mortgages with the seller of the house?
Hi John,
Are you are referring to a vendor take-back mortgage? If so, then this loan would be considered a private mortgage and as such, would not require high-ratio mortgage insurance.
Best,
Dave
Dave,
Wanting to buy a second home and turn my current home into a rental property, the house is 7 years from being paid off and the rental will cover this mortgage and taxes.
Debating if I draw equity to put 20% on the new home or as little as possible and have a cmhc backed loan in case things go south will this protect my rental property assuming the default covers all costs associated with the default?
Thanks! Grant
Hi Grant,
To clarify, default insurance covers the lender against loss, not the borrower. If you were to default on a mortgage the insurer would come after you for all related costs, and if you owned an additional property I imagine that they would try include your equity in that as part of any settlement.
Best,
Dave
Hi Dave
Trying to close a deal on a property with a list price $50K over assessed value (from July 2017) and offering $50K over that which my realtor assures me is not mental (Vancouver condo market). Genworth wants to appraise the unit which is not unreasonable. Two questions: 1. How long do you think it will take for Genworth to complete their appraisal (in other words how many subject days should I write into the offer)? 2. Is a partial underwriting possible, i.e., could Genworth come back to the lender and say “we will underwrite only $495K; your borrower will need to pay the difference ($15K) out of his own pocket (or arrange different financing for that portion)”?
Thanks
Phil
Hi Phil,
Appraisals typically take anywhere from 2 to 5 business days, but that depends in part on the availability of the current occupant.
Genworth and the lender will lend on the lower of the purchase price or the appraised value, so unless there is a material defect that is uncovered in the appraisal, they will simply underwrite at the appraised amount and you will need to make up the difference from your resources.
Best,
Dave
Hello David,
My wife and I bought a home 5 years ago and only put down 10% at the time, so we are now paying the CMHC. Our maturity date is coming up next month, and we’ve recently put down a $50,000 lump sum towards the principal of the loan. This now means me have more than the 20% put in towards the loan.
My question now is, upon renewal next month, do we still have to pay into the CMHC insurance, or will it be taken off?
Thanks
Hi Stefan,
The default-insurance you paid for when you bought was a one-time charge, so there is no additional cost for you to keep it in place at renewal (and that coverage attached to your mortgage even if you switch to a new lender at renewal).
FYI – that default-insurance entitles you to lower rates with many lenders so you are well advised to keep it in place for as long as you can!
Best regards,
Dave
Hi Dave,
I have a high ratio mortgage. Next summer I can renew. I am not sure how the renewal process works. Will it become a conventional mortgage now?
Hi Melissa,
If your mortgage balance is now less than 80% of its current value then it would become a conventional mortgage at renewal. That said, if you just roll the balance and don’t make any changes to it when your existing term expires, your default-insurance policy will remain in place (even if you switch lenders).
That’s important because in many cases, that default-insurance policy will entitle you to lower rates on your next mortgage.
Best regards,
Dave
Great answers and article!
Question is : we didn’t want to pay chmc insurance and had 20 pc down however appraisal came in 60k bellow offer price. Now we are forced by the bank to roll that 60k in and go below 20 pc down (ie 14 pc down) so we are having to pay insurance fees.
Not happy about this but question is how easily can we get out of chmc loan after say a yr or two. provided the value and appraisal supports an increase in value say to 900k. Then can we refinance at 80 pc LTV and get out of paying cmjc ins premiums?
Essentially how easy is it get out of cmhc mortgage to a non cmhc on the same property (owner occupied)
Thanks in advance!!
Hi Manu,
Thanks for your email.
In answer to your question, CMHC charges a one-time fee that is non-refundable.
Best,
Dave
Hi,
Great articule, and clear understandable answers….hoping you can clear things up for me.
We just bought a new house with 5% down. The mortgage lender chose to pay the CMCH fee as a lump sum payment (we weren’t consulted on this) and at this time are still unsure what benefit or loss this results in as 1st time home buyers. The lump-sum payment was $12,4500, we have a 25yr mortgage.
1) Does this lump sum represent the insurance premium for the 25yrs of the loan?
2) Wouldn’t it make more sense to pay this as a monthly premium because the principal on the mortgage will go down over time?- are we able to make this change after having signed the mortgage agreement?
3) If we sell our house and buy another in a few years with 20% down ….is a portion of this money refundable?
4) If we bought another house at less than 20% would we have to pay this fee all over again on the new house ?
Hi Brianna,
1. High-ratio default-insurance fees must be paid in full and upfront. Once the fee is paid, the insurance remains in place over the full 25-year amortization of the loan, even if you switch lenders at renewal.
2. You do not have the option of paying the default-insurance premium monthly.
3. The default-insurance premium is not refundable under any circumstances.
4. If you sell your current home and buy a different home down the road, as long as the gap between your buy and sell dates is within the range allowed by the default insurer (which I believe is 120 days), then you would be able to port your default-insurance policy over to the new property. FYI – If you needed to increase your loan amount as part of that transaction, you would have to pay a default-insurance top-up fee on any additional funds borrowed.
Best,
Dave
I just wanted to start off by saying, this article is superb, and has helped me get a better understanding of how the internals of CMHC and its competition are conducting themselves. I would also like to say thank you for all of the answers you have provided in the comment section. as a just starting off real-estate investor things are starting to become a lot more clear, and its folks like you David that don’t get enough recognition with the kindness you spread.
Thank you Again.
Nateram Jaisingh
Thank you for your note Nate. Very kind of you to write in.
Best,
Dave
Hi Dave
Whats happens to CMHC in case of the death of one of the borrowers?
Me and My wife own a property and have CMHC, I just want to know if after my death does this insurance covers cost of my house?
Thanks
Shail
Hi Shail,
High-ratio default insurance only protects the lender in the event of a credit default.
There are other forms of insurance that can cover you against disability, illness and death, but those are different.
Best regards,
Dave
Hi. Great article. At renewal do I need to keep remainig amortization or can I set it to 25 yrs again to keep mortage insurance?
Hi Umii,
To keep the default insurance in place you must leave the amortization unchanged at renewal.
Best,
Dave
Is there a penalty if I were to use CMHC Loan and then flip the house a few months later?
Hi Sheldyn,
There is no penalty for the CMHC fee if you break the mortgage early – but there is also no refund for this one-time fee either.
Best,
Dave
Hi, I have default mortage insurance for the house which I bought 2 years back. Now I want to sell the house so do I get the default insurance money back(approx. $19,000) even though I haven’t completed the amortization(25 years)?
I’m not buying a new mortgage and don’t want to transfer the mortgage as I’m moving out of country.
Hi Ravi,
Unfortunately the fee is non-refundable.
Best,
Dave
hello ive purchased a home last year with 20% and still endup paying for mortgage insurance is it even possible?
Hi Saeed,
In special circumstances mortgage-default insurance can be required on purchases where the down payment is a much as 35%.
So in answer to your question, yes, this is possible and legitimate.
Best regards,
Dave
Hi Dave, if i buy a new home with less than 20% down, i am getting a lower interest rate vs 20% down. does this continue over life of mortgage?
Hi Vipul,
If you pay for high-ratio mortgage default insurance it will remain in place even if you switch lenders at renewal (and the coverage is even portable to another property).
The only way the insurance will be voided is if you refinance the existing loan.
Best,
Dave
Hi Dave
I have a qn.
1. I had a mortgage for 600,000 4.5 years ago and my down payment was less than 20%. So I took the CMHC insurance
2. Now post 4.5 years, the mortgage balance is 450,000 and when renewing I wanted to ask for 550,000. How do I keep my CMHC loan intact? So I can a slight premium to keep it intact? What are my options?
Thanks in advance for your advise.
Regards,
Karthik
Hi Karthik,
There is no way to preserve your default-insurance if you refinance your existing mortgage.
The only option would be to add a second mortgage, but that would be significantly more expensive, and likely not practical.
Best,
Dave
Hi Dave,
Great info! We are coming up for renewal and our home is now likely worth more than $1 million (who would have thought…). It’s our 3rd term (2nd time renewing) and we had CMHC insurance the first time and I guess we kept it when we last renewed. Now, will we get stuck with a higher rate b/c I read that you can’t get CMHC on a property worth more than $1 million ?
Hi Danielle,
If you are going a straight renewal (with no changes to your mortgage) then your existing default insurance policy will remain valid and you will be eligible for the best rates available.
Dave
Hi David,
If my original amortization was 25 years, after a 5 year term I would have 20 years left. If at this point I refinanced to 25 years again without borrowing any more money, will this affect the insurance?
Hi Anthony,
The existing default insurance remains in place if you renew with your existing lender or switch to another lender without making any changes.
If you want to re-extend your amortization, that is considered a refinance and you would void your default-insurance coverage.
Best,
Dave