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<\/a>Photo: James Bombales\u00a0<\/em><\/p>\nBut upon scrutinizing my finances, I realized it will take me years<\/em> to scrape together the cash for a downpayment over 20 percent, and I want to get into the property market now<\/em>. With more education, I\u2019ve warmed up to the idea of getting an insured mortgage. And I\u2019m not alone. In an era of rising interest rates and climbing prices \u2014 especially in markets like Toronto and Vancouver \u2014 many first-time homebuyers are eager to put down what they can, so they can step on the property ladder before it\u2019s too late.<\/p>\n To get some more information on the necessary beast that is mortgage insurance, I spoke to Dan Eisner, the founder and CEO of True North Mortgage and Toronto-based mortgage agent Darlene Hanley from Hanley Mortgage Group.<\/p>\n If you put down anywhere between 5 percent and 19.99 percent as a downpayment, you are required to pay mortgage default insurance. This is not to be confused with mortgage life insurance \u2014 which protects your estate if you die before paying it off.<\/p>\n We\u2019re used to insurance protecting us. But in this case, CMHC insurance protects your lender. \u201cIf you were to default on your mortgage, CMHC would make good on your mortgage payments with the bank, but then they would still come after you for those payments,\u201d explains Eisner.<\/p>\n\n CMHC was founded by the Canadian government in 1946 to help returning World War II veterans find housing. Over the decades, the mandate has expanded to help all Canadians. \u201cThe government wanted to help first-time homebuyers get into the housing market,\u201d explains Eisner. \u201cThey knew if banks did it, it would be very costly for Canadians. It would also be risky and they didn\u2019t want our banks taking on that kind of risk. So they invented CMHC, and outlawed banks from doing mortgages with less than 20 percent down without CMHC.\u201d<\/p>\n Today, there are three providers of mortgage default insurance in Canada. The biggest one is Canada Mortgage Housing Corporation (CMHC), but you can also get an insured mortgage from Genworth Canada and Canada Guaranty. All three are backed by the government and offer identical premiums and access to the same interest rates. With the exact same product, how do you decide which one to go with?<\/p>\n \u201cWe leave that decision up to our underwriter,\u201d explains Hanley. \u201cSome underwriters prefer certain insurers \u2014 they just have a rapport with them. And sometimes CMHC will do something that Genworth won\u2019t do, for example, depending on the type of building.<\/a> But I usually don\u2019t pick.\u201d<\/p>\n \u201cFrom an end-user point of view, it really makes no difference which one you go with,\u201d says Eisner.<\/p>\n The amount of mortgage insurance you pay depends on how much you put down. The price ranges from 2.8 percent to 4 percent (the maximum fee, if you\u2019re putting down the minimum downpayment of 5 percent). To calculate it, first figure out what percentage your downpayment is and match it to the appropriate insurance premium rate. Then you subtract your downpayment from the purchase price and apply the insurance premium to the remaining principal.<\/p>\n So for example, say the condo you want to buy is $600,000 and you put down 10 percent ($60,000). The remaining principal is $540,000 ($600,000 – $60,000). When you put down 10 percent, you pay 3.1 percent in CMHC insurance (since you fall within the 10 percent and 14.99 percent insurance premium category). On $540,000, this means you\u2019ll pay an extra $16,740 ($540,000 x 3.10 percent) over the life of your mortgage.<\/p>\n Those few percentage points don\u2019t seem like much \u2014 but as you can see, they easily add tens of thousands of dollars to your total.<\/p>\n You can only put down 5 percent for a home that\u2019s $500,000 or less. If you buy a place that\u2019s $750,000, you can pay 5 percent on the first $500,000 and 10 percent on the remaining difference. If your property is over $1,000,000, CMHC won\u2019t be available to you and you\u2019ll have to put down at least 20 percent.<\/p>\n You can\u2019t get an insured mortgage on an investment property (sorry, aspiring landlords), and the maximum amortization available to you will be 25 years, instead of 30 years with a larger downpayment. On top of paying CMHC insurance each month, the shorter amortization translates to higher monthly mortgage payments.<\/p>\n Your credit score will also be reviewed when you\u2019re planning to put down less than 20 percent. \u201cThe credit criteria has actually gotten tougher,\u201d says Eisner. \u201cIf you have less than a 650, you should be worried. To have a sure thing \u2014 with less than 20 percent down \u2014 you\u2019d need a 710 or above.\u201d<\/p>\n If you live in Manitoba, Ontario or Quebec, you will also have to pay provincial sales tax (PST) on the CMHC insurance on closing day.<\/a> It varies depending on where you live. In Toronto, for example, it\u2019s 8 percent. So if your CMHC insurance is $8,000, you\u2019ll have to contribute $640 for PST.<\/p>\n<\/a>Photo: James Bombales\u00a0<\/em><\/p>\nLet\u2019s start with the basics. What is CMHC insurance?<\/h2>\n
How much will it cost me?<\/h2>\n
<\/a>Chart:\u00a0Canada Mortage Housing Corporation<\/a>\u00a0<\/em><\/p>\nHow do I qualify?<\/h2>\n
\r\n SEE ALSO:<\/span>A first-time homebuyer\u2019s guide to closing costs in Canada<\/a><\/strong>\r\n <\/div>\n