You want to buy a house, but don’t have the required 20% down payment. This is when you are offered the CMHC loan insurance. But what is the CMHC?  Why do we offer this insurance?  Is it worthwhile? Let us clarify this for you.

CHMC:  WHAT IS IT?

CMHC stands for Canada Mortgage and Housing Corporation. In fact, the CMHC is a Crown corporation (a company established by the federal government) responsible for stabilizing the housing market. They are the first provider of mortgage insurance, mortgage securities and research programs related to the housing sector. In short, the CMHC is Canada’s national housing agency.  

A BIT OF HISTORY

The CMHC was created on January 1^st, 1946. With the end of World War II on September 2, 1945, the government feared a housing shortage. The solution to this was to create the CMHC, which was then called the Central Mortgage and Housing Corporation. The company aimed to facilitate access to mortgage financing, loans for housing renovations and even the creation of real estate projects. History would later show us that the government was right. Soldiers returned from war and didn’t waste time starting families, thus giving birth to the Baby Boomer generation. 

THE CMHC’S ROLE

The role of the CMHC is to make affordable housing accessible for all. It ensures access to quality housing at an affordable cost for all Canadians. The CMHC offers accessible financing options and allows Canadian residents (regardless of citizenship) to become homeowners.

WHY DOES THE CMHC EXIST?

All mortgage loans with a down payment below the required 20% must be insured. It’s a government requirement. The CMHC provides an insurance that allows buyers to acquire a loan with a down payment of only 5%. The CMHC's insurance protects your lender while allowing you to provide a lower down payment when buying a home. In turn, your lender is guaranteed they won’t lose a dime if you don’t pay your mortgage, because they are protected by the CMHC insurance you pay.

CMHC: PROS AND CONS

As mentioned above, the CMHC insurance allows buyers to become homeowners while paying a lower down payment to reduce their debt. However, the major drawback to opting for the CMHC insurance is the significant increase in fees, which adds an extra 5% to 7% to your mortgage. These taxable costs are added to your mortgage and are reimbursed as you pay your mortgage. For example, you might pay more than $16,000 in fees on a $540,000 mortgage, which would require you to pay more than $556,000 for the repayment of your loan.

SHOULD I CHOOSE THE CMHC?

It is true that paying the minimum required down payment to buy a house translates into additional costs.   However, according to an experienced TVA Nouvelles columnist, “Interest rates are rising, and so are house prices; buying a property now instead of putting it off could save you thousands of dollars in interest and acquisition costs”. So, future buyers – if you don’t have the means to provide the required 20% down payment, we urge you to consider the CMHC’s solution that will allow you to access home ownership now, while paying your mortgage with peace of mind. 

As accredited mortgage brokers, we are the experts that can answer your questions related to your next mortgage. Contact us for a free consultation!