MoneySense Toolkit: The CMHC mortgage insurance calculator
CMHC insurance calculator
If you want to buy a home and have a down payment of less than 20% of the purchase price, you’ll need to purchase mortgage default insurance, often referred to as CMHC insurance or simply mortgage loan insurance.
What is mortgage default insurance (CMHC insurance)?
Mortgage default insurance protects your lender in case you can’t make your mortgage payments and default on the loan. While it can cost thousands of dollars, it makes your mortgage less risky for lenders and allows you to get a more favourable interest rate. Mortgage default insurance is usually automatically calculated by your lender and detailed in your mortgage agreement.
Mortgage default insurance is offered through three providers in Canada. The first is the Canada Mortgage and Housing Corporation, a crown corporation of the Government of Canada. Its mandate is to improve Canadians’ access to housing, and mortgage default insurance is part of that mandate. There are also two private mortgage default insurers in Canada: Sagen (formerly Genworth Financial) and Canada Guaranty.
How to calculate mortgage default insurance
To know how much you’ll pay in mortgage default insurance, you first have to determine your loan-to-value ratio by dividing your mortgage amount by the purchase price of the home. (To figure out your mortgage amount, subtract your down payment from the purchase price). For example, if you have a 5% down payment, your mortgage represents 95% of your home’s value, which means the loan-to-value ratio is 95%.
Your mortgage default insurance premium is calculated based on the loan-to-value ratio. Since you must only pay for mortgage default insurance on mortgages with a down payment of less than 20%, your premium will be somewhere between 2.8% and 4.0% of your mortgage amount.
| Loan-to-value | Mortgage insurance premium applied to mortgage amount |
|---|---|
| Up to and including 65%* | 0.60% |
| Up to and including 75%* | 1.70% |
| Up to and including 80%* | 2.40% |
| Up to and including 85% | 2.80% |
| Up to and including 90% | 3.10% |
| Up to and including 95% | 4.00% |
Using the table above, we can determine the mortgage default insurance premium for any home purchase. For example, let’s say you purchase a home for $700,000 and have $105,000 for the down payment. In this case, your mortgage amount is $595,000, and your loan-to-value ratio is 85%. Based on the table above, your mortgage default insurance premium is calculated as $595,000 x 2.80%, which comes to $16,660.
Alternatively, you can use a CMHC mortgage insurance calculator, which lets you adjust various inputs and dynamically calculate your mortgage default insurance premium. The premiums listed above are the same for all three mortgage default insurance providers in Canada.
What are the eligibility requirements?
You’ll need to meet specific eligibility requirements to qualify for mortgage default insurance. These requirements are in place to ensure that you can faithfully make your mortgage payments. In order to qualify, you must have:
- A maximum mortgage amortization period of 25 years.
- A minimum down payment of 5% for homes valued under $500,000. For homes valued between $500,000 and $999,999, you need 5% of the first $500,000, plus 10% of the remaining value. Your home cannot be valued at over $1 million, for which you need at a least a 20% down payment.
- A credit score of at least 680.
- A gross debt service ratio of less than 35%.
- A total debt service ratio of less than 42%.
- Proof that your down payment is not borrowed money.
How do you pay mortgage default insurance?
Mortgage default insurance can add up to tens of thousands of dollars. Fortunately, while you do have the option of paying the insurance in a lump sum, often the premium is added to your mortgage balance, and you’ll pay it off over the life of your loan.