How to minimize CMHC insurance

(May 20, 2015 )

What is CMHC Mortgage Loan Insurance?

What is CMHC Mortgage Loan Insurance?Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
How do you calculate your CMHC Insurance: Click here to access CMHC calculator
How do you pay mortgage default insurance?

Mortgage default insurance is financed through your mortgage. Unlike closing costs such as lawyer fees and land transfer tax, it does not require a lump sum cash outlay at the time you purchase your home. Your insurance premium is added to the value of your mortgage, and your monthly payment increases accordingly. 
.How to minimize CMHC insurance

There is one way to minimize mortgage default insurance:1. Increase your down payment (as a percentage of your home price)Increase your down payment (as a percentage of your home)If you want to increase your down payment as a percentage of your home value, you will either have to increase the amount you put down or purchase a less expensive home. Examining the first option, you may want to consider additional sources for your down payment, such as a gift from a family member or, if you are a first-time homebuyer, a tax-free loan from your RRSP



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Mortgage default insurance is financed through your mortgage. Unlike closing costs such as lawyer fees and land transfer tax, it does not require a lump sum cash outlay at the time you purchase your home. Your insurance premium is added to the value of your mortgage, and your monthly payment increases accordingly. Continuing with the above example, the revised mortgage amount would be $260,000 + $5,200 = $265,200.
How to minimize CMHC insurance
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There is one way to minimize mortgage default insurance:
1. Increase your down payment (as a percentage of your home price)
Increase your down payment (as a percentage of your home)
If you want to increase your down payment as a percentage of your home value, you will either have to increase the amount you put down or purchase a less expensive home. Examining the first option, you may want to consider additional sources for your down payment, such as a gift from a family member or, if you are a first-time homebuyer, a tax-free loan from your RRSP.
Mortgage default insurance rates with a non-traditional down payment
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Source: Canada Housing and Mortgage Corporation (CMHC)