Tag Archive for: mortgage insurance

The Price of Admission

Nobody loves paying for insurance they don’t get to use themselves. And CMHC insurance might be the most misunderstood line item in Canadian real estate — most people assume it’s there to protect them. It isn’t.

What is CMHC insurance?

CMHC insurance — also offered through Sagen and Canada Guaranty — is mortgage default insurance required by Canadian law whenever a down payment is less than 20% of the purchase price. It protects the lender if the borrower defaults, not the borrower themselves.

Who does CMHC insurance actually protect?

The lender. That’s the part that surprises most people. But because the lender is protected, they’re willing to approve a smaller down payment than they otherwise would. No insurance, no 5%-down purchase — period. The premium isn’t a penalty for not having enough saved. It’s the mechanism that lets you buy with less of it.

How much does CMHC insurance cost?

The premium is a percentage of the mortgage amount, set in tiers based on loan-to-value:

  • 5% down → 4.00% premium
  • 10% down → 3.10% premium
  • 15% down → 2.80% premium
  • 20%+ down → no premium, no insurance required

On a $500,000 purchase with 5% down, that’s roughly $17,820 — almost always added directly onto the mortgage rather than paid out of pocket, so it’s financed over the amortization, not a closing-day surprise.

Is CMHC insurance worth it?

It adds to total cost over the life of the mortgage — nobody’s pretending otherwise. But the alternative, waiting until 20% is saved, can take longer than the time it takes to build equity once actually in the market. For a lot of buyers, paying the premium and getting in now beats waiting and renting in the meantime.

This isn’t a pitch for buying with less down. It’s a straight answer about what that insurance line item actually means, so you’re not left wondering what you just paid for.

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia Brokerage (2025-3000179) Broker (2025-3000180), Ontario(M23006699).

p.s.s.s You can download my new mortgage app here

Patrick Sawler is a mortgage broker and owner of Craigburn Capital, licensed in Nova Scotia and Ontario, with private financing available in New Brunswick and PEI. He answers his phone.

Ready to have a real conversation? Call 902-612-2688 or start your application here

Mortgage insurers push to keep zero-down loans!

Garry Marr, Financial Post Published: Tuesday, July 15, 2008

Private mortgage insurers are pushing for ways to keep no-money-down mortgages alive and are set to meet with Department of Finance officials in the next two weeks to discuss possible options, sources indicate.

The move comes after Ottawa cracked down on mortgage practices that allowed consumers to enter the housing market with no money down and amortize their loans over 40 years. New rules that come into effect on Oct. 15 would demand a 5% repayment and shorten the length of amortization from 40 years to 35 years.

Sources indicate the country’s major private insurers, which control about 30% of the market, have told mortgage brokers they are working on a solution which would keep the zero-down option alive and even the 40-year amortization.

One insurer, PMI Canada, which has been in the market for about a year, indicated it hopes to come up with some alternatives.

“PMI Canada is still in the process of reviewing and analyzing the new mortgage insurance measures for industry and market impact. PMI Canada looks forward to meeting with the Department of Finance at the end of the month to better understand the new measures, after which we will be better able to make an informed strategic business decision as to whether or not we are able to continue to offer the 40-year mortgage insurance option,” said Janet Martin, chief executive of PMI Canada, in an email to the Financial Post.

An industry source said the private mortgage insurers are looking into creating a product in which the first 95% of a mortgage is backed by the government with the last 5% securitized independently by the private mortgage insurers.

The new rules from finance appear aimed as much at Canada Mortgage and Housing Corp., a Crown corporation that controls 70% of the mortgage insurance market, as its private sector competitors.

In the hotly competitive mortgage insurance market, CMHC has often been the aggressor in the marketplace. For years, the entire market was CMHC and Genworth Financial Canada which has controlled the other 30% of the multi-billion mortgage industry. In the last two years AIG United Guaranty, a subsidiary of American International Group Inc., and PMI have been trying to crack the market.

CMHC and Genworth both responded to the intrusion by insuring products with longer amortizations. CMHC’s decision to insure mortgages with zero money down ended up incurring the wrath of former Bank of Canada governor David Dodge two years ago.

Mr. Dodge feared interest-only mortgages were fueling the housing market and demanded a meeting with CMHC. Some industry observers say new rules put in place last week are the long awaited response to Mr. Dodge’s concerns, coming after months of consultation.

Now, the private sector is suggesting it wants to be excluded from the new rules. “It’s still a little early. We know the government won’t back the 100% program but will the private insurers do it themselves,” said Gary Siegle, Calgary regional manager with Invis Inc., a mortgage consultant firm.

“The [private firms] are looking at trying to do the 100% insurance themselves. Brokers have been told to wait a week for more news before they can find out how to proceed.”