Canadian Mortgage Insurance

Why is it important whether you qualify for mortgage insurance?

Most conventional lenders, including banks are limited to lending no more than 75% of the value of property, unless the mortgage is "insured". If you cannot qualify for CMHC insurance, then you must obtain a separate loan or mortgage from a secondary lender to obtain the funds required, in order to obtain more than a 75% mortgage. The disadvantage with loans is that the interest rate will be higher and the amortization much shorter, and therefore the payments much larger, than they would be on a mortgage. Second mortgages are also more expensive than first mortgages, particularly when the advance exceeds 75% of market value.

If you do qualify for a C.M.H.C. insured mortgage, and it is not practical to pay off your first mortgage you may consider a C.M.H.C. insured second mortgage. If your lender will not do this type of mortgage for you, you may apply online and we will do our best to secure a C.M.H.C insured second mortgage on your behalf.

What is mortgage insurance?

In Canada, in order to obtain certain types of mortgages, the mortgage is required to be "insured". This does not relate to fire or life insurance but in this context, it means "guaranteed". In other words, the insurer guarantees that the mortgage lender (bank, trust company, etc) will not lose money on that mortgage, providing that they adhere to certain criteria stipulated by the insurer.

Mortgage insurance is usually required under the following circumstances:

• If the down payment is less than 25% of the purchase price of the home.
• If the home is located in a small town or isolated area where the lenders may consider the real estate market to be riskier.
• A mortgage that an individual may provide to himself to using his own RRSP funds.

Who is mortgage insurance available from?

At the present time, mortgage insurance is provided by CMHC and GE Capital Mortgage Insurance Canada.

What is CMHC?

These letters stand for Canada Mortgage & Housing Corporation, which is a federal Crown Corporation. When a mortgage is CMHC insured, it means that essentially, the mortgage is guaranteed by the federal government.

Under what circumstances can CMHC guarantee a mortgage?

CMHC insured mortgages are eligible for the following purposes:

• For up to 90% of market value to rewrite an existing mortgage or to consolidate debts, or for other purposes.
• To purchase a home, for up to 95% of purchase price.
• To construct a home, to 95% of value. With respect to this point, CMHC has very specific guidelines including that the builder must be a Home Warranty builder. However, there is an exception to this rule if the home owner hires various contractors and providing no subcontractor performs more than 50% of the work. (CMHC should be contacted directly for specific guidelines).
• In the case of a marriage breakup, to purchase a spouse's interest in the property, to 90% of value.
• To pay off existing mortgages and provide funds for improvements to the home. If the improvements occurred in the recent past, receipts are required to confirm the amount spent for that purpose.

Click here for the C.M.H.C. 5% down payment program.

GE Capital Mortgage Insurance Canada

They are a private sector supplier of mortgage insurance in Canada. They provide a similar service to CMHC.