Will I Need CMHC Insurance?
A mortgage is a must for many buyers, yet they can be very confusing. Not only do you have to pick which one works best for your financial situation, but you have to sort through all the different products and banks out there. The first thing to consider is how your down payment amount will determine if you need mortgage insurance or not.
Let’s take a look at the differences between a conventional mortgage and a high ratio mortgage.
A conventional mortgage is a mortgage that is given when the buyers have 20 per cent of the purchase price ready for the down payment.
High Ratio Mortgage
A high ratio mortgage is where the buyer is putting less than 20 per cent of the purchase price down. Since these are a little riskier, the buyer must purchase mortgage insurance from either the Canadian Mortgage and Housing Corporation (CMHC) or GE Capital. The insurance premium is charged only once (per mortgage), when the mortgage funds are advanced. You can pay the premium yourself, but most people choose to add the funds on top of the mortgage.
Below is a chart outlining the cost of insurance for a mortgage.
|Loan to Lending Value Ratio||Single Advance|
|65.1 to 75%||0.75%|
|75.1 to 80%||1.25%|
|80.1 to 85%||2.00%|
|85.1 to 90%||2.50%|
|90.1 to 95%||3.75%|
The insurance premium is calculated by multiplying the mortgage amount needed by the applicable percentage.
For example, if the purchase price of the home is $400,000 and the mortgage needed is $360,000 (90% of purchase price). If you look at the chart above, it shows the premium for this amount is 2.5 per cent. Multiply $360,000 by 2.5 per cent and you’ll find your actual mortgage is $369,000. That means the insurance will cost $9,000.
Information provided by Alexandra and Chris Trahiotis, RBC mortgage specialists.
This post is meant as a guide and not a replacement for advice from mortgage professionals.