Canada Mortgage and Housing Corporation (CMHC) fees (a.k.a. mortgage default insurance) are an extra payment that will be tacked on to your mortgage if your loan amount is more than 80% of the purchase price. While this fee can help you qualify for a mortgage with a small down payment, it’s still an added cost.
If you prefer to avoid these CMHC fees, read on to find out how to avoid CMHC fees when you take out a mortgage.
Key Points You Should Know About CMHC Fees
- CMHC insurance is required if you make a down payment of less than 20% of the home’s purchase price.
- You can pay your CMHC fees upfront or by rolling it into your mortgage payments.
- Buyers will pay between 2.8% to 4% of the mortgage amount for CMHC insurance.
- You can avoid or reduce CMHC fees if you make at least a 20% down payment, or sell your home and take advantage of the CMHC’s portability feature.
Can You Avoid CMHC Fees In Canada?
When you have a high-ratio mortgage, CMHC fees are automatically added to your mortgage. These fees are built in to protect the lender in the event you default. Fortunately, there are a few ways to avoid CMHC fees in Canada.
Make At Least A 20% Down Payment
You can avoid CMHC fees from the get-go by putting at least 20% down on a home purchase. To help you beef up your down payment amount, you can borrow from the following:
- Registered Retirement Savings Plan (RRSP) through the Home Buyers’ Plan (HBP)
- First Home Savings Account (FHSA)
- Tax-Free Savings Account (TFSA)
- Monetary down payment gift from family
Work With A Private Mortgage Lender
You may be able to avoid CMHC fees by working with a private mortgage lender in Canada. Private mortgage lenders mainly work with uninsured mortgages and can often offer mortgages with loan-to-value (LTV) ratios as high as 95%. Unlike banks, private mortgage lenders are unencumbered by federal regulations. They do not require you to pass the mortgage stress test and they generally have more flexible requirements than banks. This makes them a great alternative for those with bad credit or poor finances.
That said, private mortgage lenders are not federally regulated and can charge much higher fees and interest than a big bank.
Work With A Credit Union
Alternatively, some credit unions are not federally regulated. These credit unions that don’t fall under the same regulations umbrella as traditional lenders. As such, they may choose not to charge mortgage default insurance. Further, these lenders may even offer more competitive interest rates compared to private lenders.
Sell Your Home
CMHC insurance premiums can be reduced or even eliminated if you move to another house thanks to a “portability option.” This helps to reduce or eliminate the premium on a new insured mortgage to buy another house.
When you sell your home and buy a new one, CMHC’s portability feature allows you to get a premium discount to lower your insurance premium required when you apply for a new loan insurance application. The amount of this discount is based on the length of time between the original mortgage closing date and the new insurance application, as per the following chart:
| Elapsed Time From Original Closing Date To New Insurance Application | Premium Credit |
| Within 6 months | 100% |
| Within 12 months | 50% |
| Within 24 months | 25% |
For instance, let’s say the time period between your original closing date and the new insurance application is 6 months. In this case, you would be entitled to a 100% premium discount on the premium that you already paid for the original CMHC-backed loan. If the time frame is 12 months, you would get a 50% discount on your premium.
That said, it’s important to check with your lender to find out the exact terms and conditions of mortgage portability for a particular mortgage package, such as the LTV and amortization schedule.
Do you have to pay CMHC fees when you renew your mortgage?
Is The Mortgage Default Insurance Premium Refundable?
If you paid your CMHC fees in full upfront, you typically won’t be refunded or rebated if you reach at least 20% equity, or even if you pay off your mortgage in full.
However, you may be eligible for a 25% partial refund through the CMHC Eco Plus program if you’re CMHC insured and purchase an energy-efficient home or make eco-friendly updates to your existing home.
If you meet the eligibility requirements for the program, you have 2 years to request your refund after your mortgage closes. You’ll also need to provide the CMHC with an eligible third-party certification and/or an EnerGuide label or EnerGuide Renovation Upgrade Report (RUR).
How To Minimize The Amount You Pay In CMHC Insurance
If you can’t avoid CMHC insurance completely, you may still be able to minimize how much you have to pay.
As mentioned, putting at least 20% down will help you avoid paying CMHC insurance. But if you can’t quite make it to that point, at least try to increase your down payment enough so that you reduce the rate that you’re charged.
For instance, making at least a 10% down payment can bring your rate charge down from 4.00% to 3.10%. Even that slight reduction can save you a few thousand dollars.
Is CHMC Mortgage Insurance Mandatory In Canada?
Mortgage default insurance is mandatory for Canadian buyers who have down payments less than 20% of the purchase price and take out a mortgage with a federally regulated lender (you may be able to avoid this insurance if you work with a private lender or non-federally regulated credit union).
Mortgage default insurance is designed to protect the lender in the event the borrower is unable to pay the mortgage. In Canada, mortgage default insurance is provided by Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty, and Sagen.
Private Mortgage Default Insurance Providers
Canada Guaranty and Sagen are private mortgage default insurance providers. Each of these companies determines its own set of rules regarding the types of mortgages that they agree to insure and the requirements for such mortgages.
Can You Choose Your Mortgage Default Insurance Provider?
Mortgage default insurance is automatically added by your lender when you put a down payment of less than 20%. Unless you ask, you won’t know who the mortgage default insurance provider is.
How Much Are CMHC Fees?
The cost associated with mortgage default insurance depends on a number of factors, including your down payment amount. Generally, you’ll pay 2.40% to 4% of the mortgage amount.
Here’s how much you can expect to pay based on your LTV ratio.
| Loan-to-Value (LTV) | CMHC Premium Rate |
| Up to and including 65% | 0.60% |
| 65.01% to 75% | 1.70% |
| 75.01% to 80% | 2.40% |
| 80.01% to 85% | 2.80% |
| 85.01% to 90% | 3.10% |
| 90.01% to 95% | 4.00% |
Example Of CMHC Fee Calculation
If you have a $500,000 home and you put 5% ($25,000) down, you’ll have a mortgage of $475,000.
With a 5% down payment, you’ll be charged a CMHC premium rate of 4% (since you fall within the (90.01% – 95% LTV range).
Your insurance premium would be $19,000 ($475,000 x 4%). This amount would then be added to your mortgage amount, which means you’d have a total mortgage amount of $494,000.
How Are CMHC Insurance Payments Made?
Generally speaking, mortgage default insurance is financed through and added to your mortgage payments.
However, there is an option to pay your CMHC insurance in one lump sum at the onset of your mortgage if you have the liquid cash available to cover this payment. If you choose this option, your CMHC fees will not be included in your mortgage payments.
The Bottom Line On How To Avoid CMHC Fees
While mortgage default insurance is an expensive costs to buying a home, it can help you buy one when you don’t have a lot of money saved up That said, you can avoid these extra costs by either putting a 20% down payment or by working with a private lender.
