But this is just the basic
information - there is a lot more you must know about CMHC mortgage default
insurance. If you are buying a house for sale in Brampton with less than a 20% down payment, don’t miss these key
details about CMHC insurance.
What Makes Mortgage Default Insurance a
Must for Certain Homebuyers
Before we dive into that,
let’s first talk about high-ratio mortgages. A high-ratio mortgage is when you
borrow over 80% of the home’s value, meaning you put down less than 20% as a
down payment. Lenders must take a higher risk in these mortgages since you
borrow a larger portion of the home value. In case of payment default, the
lender has less equity in the property to recover their money.
Mortgage default insurance
plays a key role in these situations. This insurance protects the lender if you
(the homebuyer) default on your mortgage. It ensures that if something happens,
such as the home value drops or the borrower defaults on the loan, the lender
can recover some of the money.
But is the mortgage default
insurance mandatory when buying a house
for sale in Brampton?
Yes, it is! If you buy a
house in Brampton or elsewhere in Canada with less than a 20% down payment, the
government mandates that you get mortgage default insurance. It is one of the
many ways the government keep the housing market stable while allowing more
people to become homeowners.
In Canada, there are three
main providers of mortgage default insurance:
●
Canada Mortgage and Housing Corporation
(CMHC)
●
Sagen
● Canada
Guaranty
In this blog, we will be
focusing specifically on CMHC mortgage default insurance.
CMHC Mortgage Default Insurance Works in
the Favour of Homebuyers Too
CMHC mortgage default
insurance does not just step in to protect your lender when you fall behind on
your mortgage. This default insurance also has some real benefits for you as a
homebuyer. Here is how the CMHC mortgage default insurance works in your favour
-
1.
You
Can Buy a Home Sooner Than You Thought
As of March 2025, the average
sold price of houses for sale in
Brampton was $931,500. So, if you were to buy this average-priced home in
Brampton with the traditional down payment of 20%, you would need to save
$186,300. However, with the CMHC mortgage default insurance, you can buy that
house with a much smaller down payment. Based on the down payment
requirements, your minimum down payment on this house
will be $68,150. That’s a difference of over $118,000!
That is a much more
manageable number, and it can help you enter the housing market much sooner
than you thought possible. You can start building equity immediately instead of
waiting and watching home prices climb even higher.
2.
Insured
Mortgage Rates Are Lower Than Uninsured
Another bonus? Insured
mortgages often come with lower interest rates compared to uninsured ones.
That’s because the insurance reduces the lender’s risk - if you default, the
insurance helps the lender cover the loss. With that protection in place,
lenders are more comfortable offering better rates. As of April 29,
Butler Mortgage offered the lowest mortgage rates in Canada for insured and
uninsured mortgages. CIBC had the most competitive rates among the Big Six
Banks for insured and uninsured mortgages.
3.
More
Lenders Will Be Willing to Work With You
Mortgage lenders are more
willing to work with borrowers who have CMHC-insured mortgages. Hence, if your
mortgage is insured, you will have access to a broader range of lenders, giving
you a better chance of finding the best mortgage deal. On the other hand, some
lenders might avoid working with you altogether without this insurance.
The Total Cost of CMHC Mortgage Default
Insurance in Brampton
The total cost of CMHC
mortgage default insurance depends on three main factors: the premium,
interest, and sales tax.
1.
PREMIUM
The premium is the base cost
of mortgage default insurance. It is calculated based on your loan-to-value
(LTV) ratio - your mortgage's size compared to the home's value. The smaller
your down payment, the higher your LTV and premium will be.
Here is a table showing the
mortgage insurance premium rates based on your LTV and minimum down payment -
Source
- CMHC Insurance
Premiums
Let’s break down the CMHC
insurance premium payment calculation with an example. Suppose you buy a
$950,000 home in Brampton with a minimum down payment, i.e., $70,000. That
means your mortgage is $880,000, and your LTV would be around 92.6% (Mortgage
Amount/Home Price X 100). The premium rate for this LTV is 4%, so your CMHC
premium is $35,200.
You can pay the mortgage
insurance premium upfront on the closing day or ask the lender to add it to
your total mortgage balance. The latter option is more common, where the lender
will pay the premium upfront for you and then roll it into your mortgage. You
will repay the premium with your monthly mortgage payments over the
amortization period.
2.
INTEREST
When you add the premium to
your mortgage, you must pay interest on that premium amount for the full
amortization period. The interest rate on the premium amount will likely be the
same as your mortgage.
3.
SALES
TAX
Depending on your province,
you might need to pay sales tax on your CMHC premium. You will have to pay the
sales tax at closing, as lenders don't allow you to include sales tax in your
mortgage.
You can use a CMHC mortgage
calculator available online to better understand how much your mortgage default
insurance might cost. Or you can also use a mortgage calculator to
get a broader view of your home-buying expenses, including the mortgage default
insurance cost.
Ways to Skip Paying for CMHC Mortgage
Default Insurance
You can skip the CMHC
mortgage default insurance completely by putting down at least 20% when buying
a home. You can save this amount on your own, borrow from your RRSP through the
Home Buyer’s Plan, or ask for gifted funds from a close family member. However,
if coming up with the 20% down payment feels tough, there is another option you
can consider - working with a private mortgage lender or credit union. These
lenders often provide uninsured mortgages with loan-to-value ratios as high as
95%. Their approval requirements are generally more flexible, though they
charge higher rates than traditional banks.
If you still have questions
or aren’t sure what works best for your situation, speak with a mortgage
professional. The mortgage expert can look at your financial situation and
recommend the right path forward - one that helps you buy your dream home in
Brampton with confidence and clarity.