FAQ's: Mortgage Loan Insurance

1. I understand I have to get a loan to buy a house. But why is it called a "mortgage"?

Nowadays, a mortgage involves an agreement between a lender and a borrower where the lender decides to loan the borrower money to purchase property under the condition that the borrower promises to repay the loan and provides that land as security for their payment of the loan; when the loan is repaid in full, the lender will release the property to the borrower. If the borrower defaults on that loan, the lender may take its security (the property) in order to satisfy the debt owing to it. In the event of a default on that loan, the liability may not be fully satisfied by the sale of the property and the borrower may therefore be responsible for the payment of the shortfall. Mortgages are the primary means by which people finance the purchase or their homes.

2. What can I use as my down payment on my new house?

A CMHC insured mortgage provides you with down payment flexibilities - you can own your home with a minimum down payment of 5%.

For those home buyers who have saved up a down payment, traditional mortgage loan insurance products require home buyers to provide the minimum down payment from their own resources, however gift down payments from immediate relatives are also acceptable.

Additional sources of down payment are also available through CMHC's Flex Down product. With Flex Down, homebuyers with a proven track record in managing their debt can provide the 5% down payment from a variety of sources, including borrowed funds or lender incentives, provided the funds are at arm's length from and not tied to the purchase or sale of the property. Please contact your lender to confirm availability and qualifying criteria.

3. When does my lender need mortgage loan insurance?

Typically lenders will require mortgage loan insurance if a borrower has a down payment of less than 20% of the purchase price of the home.

By protecting lenders against borrower default, CMHC Mortgage Loan Insurance creates an opportunity for Canadians to realize their dreams of homeownership. And when you buy your home sooner, you grow equity faster AND benefit from interest rates that are comparable to someone buying with a 20% down payment.

4. Who arranges CMHC Mortgage Loan Insurance?

Your lender will arrange for the purchase of CMHC Mortgage Loan Insurance. When you negotiate your loan terms make sure to ask that the mortgage be CMHC insured.

5. Does CMHC Mortgage Loan Insurance only apply to traditional single-family residential properties?

No, CMHC offers mortgage loan insurance products on various property types including duplexes, condominiums, owner-occupied properties, manufactured or mobile homes, properties requiring renovations and much more, including rental and nursing homes. Please check with your lender for more details.

6. Who pays for the CMHC Mortgage Loan Insurance?

Like any other kind of insurance, there are premiums to be paid. The lender typically passes on the cost of insurance to the borrower. The premiums can be paid up front in a lump sum or blended in with your mortgage loan payments.

CMHC manages its mortgage insurance activities through sound business practices that ensure commercial viability even in less favourable economic times. Consistent with the directions set by the office of the Superintendent of Financial Institutions for private sector insurers, CMHC maintains sufficient reserves to meet anticipated future claims. As of the end of 2004, CMHC was providing protection against borrower default on nearly $244 billion in mortgage loans outstanding.

7. I heard that there is an upper limit to the price of a house I can buy with a small down payment?

Not any more. As of September 2003, CMHC removed its price ceiling limitations. For the purposes of qualifying for CMHC Mortgage Loan Insurance, CMHC does not have a limit on the purchase price of a property.

8. A friend told me I could refinance my home to make some renovations. What does that mean?

If your lender refinances your loan using CMHC Mortgage Loan Insurance, you can increase the existing mortgage on your home up to 90% of its current value or as improved value. Refinanced funds may be used for any purpose you wish, except default management. There are some eligibility requirements; please consult with your lender or mortgage broker for all the details.

9. Is CMHC Mortgage Loan Insurance available for secured lines of credit?

Yes. With a secured line of credit, you can draw funds up to your insured credit limit (up to 80% of the current or as improved value of your home) at any time without the need to re-apply, and you can also make interest-only payments for a period of time. Equally important, you have the flexibility to prepay without penalties. Please contact your lender to confirm availability and qualifying criteria.

10. My mortgage is currently CMHC-insured and I am moving to another house. Are there any CMHC products available to me?

When a lender has received CMHC Mortgage Loan Insurance on your home loan on or after April 1, 1996 and you are purchasing another home, there may be a mortgage portability option. Portability allows the repeat user of CMHC insured mortgage financing to save money by reducing or eliminating the premium on a new insured loan for the purchase of another home. Please check with your lender for the terms and conditions of mortgage portability.

To read more about CMHC Mortgage Insurance please visit their website.

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