Any time you are looking to purchase or refinance a home it is a good idea to understand the difference between CMHC insured mortgages vs. non CMHC insured mortgages. CMHC, otherwise known as the Canadian Mortgage and Housing Corporation, is an organization that was created by the Canadian government to create affordable housing in Canada.
CMHC offers high ratio mortgage insurance to the banks which protects them in the event that you default on your mortgage. Prior to the existence of CMHC high ratio insurance if you wanted to purchase a home you would need a 25% down payment.
When comparing CMHC insured mortgages vs. non CMHC insured mortgages it is important to consider the benefits associated to a CMHC insured mortgage.
The biggest benefit is that CMHC insured mortgages enable homeowners to purchase a home with as little as no money down. No money down mortgages are usually only offered to those who have excellent credit, so if your credit is average you will likely need 5% down payment even if you are taking out a CMHC insured mortgage. Refinance mortgages are slightly different. Last year the laws changed and now CMHC will only high ratio insure a refinance mortgage up to 85% the value of the home.
CMHC insured mortgages do not require appraisals. This is a major benefit when refinancing a home because an appraisal can cost approx. $300 and is a cost you can save by having a CMHC insured mortgage.
Obtaining a CMHC insured mortgage will mean that in addition to your bank, CMHC will also have to approve your credit application. They will consider your credit, income and debt and you will have to meet their guidelines to be approved for CMHC high ratio insurance. Also, if approved, a CMHC high ratio insurance premium will be added to your mortgage. The CMHC high ratio insurance fee will depend on the loan to value of your mortgage. The loan to value is the percentage of your mortgage against the value of your home. Your CMHC mortgage insurance premium could be up to 3.5% of the amount of your mortgage.
When looking at CMHC insured mortgages vs. non CMHC mortgages the main difference is that to obtain a non CMHC insured mortgage you will require at least 20%-25% down payment if you are purchasing a home or 20%-25% equity if you are refinancing. You will also require a property appraisal. Banks will not finance a mortgage without CMHC high ratio insurance that is more than 75% the value of the home not because they don’t want to but because they cannot under the Chartered Banks Act.
Only finance companies, trust companies, mortgage investment corporation and private lenders can offer uninsured mortgage financing at loan to values greater than 75% and can usually only be obtained through Mortgage Brokers. Some trust companies and mortgage investment corporations will offer non CMHC insured mortgage financing up to 90% of a properties’ value.
The type of mortgage you will be able to obtain will depend on your credit, income and financial circumstances. If you have less than 25% down payment a CMHC insured mortgage is likely the best way to go.