When you take out a mortgage, there are a number of fees associated with this type of loan aside from just the principal amount that you are required to pay back, and that may include CMHC fees.
Otherwise known as mortgage default insurance, CMHC fees are charged when a borrower puts forth a down payment that is less than 20% of the purchase price of the home. In this case, the borrower is required to pay insurance to protect the lender in the event that the borrower is no longer able or willing to make mortgage payments.
If you made a down payment that was less than 20% of your home’s purchase price when you first took out your mortgage, you likely have mortgage default insurance premiums added to your mortgage payments. But what about when you renew your mortgage? Are you still required to pay these premiums when you renew your home loan?
What Is CMHC Insurance?
As mentioned, CMHC insurance is required if you are unable to come up with a down payment that is at least 20% of the purchase price of the home. These high-ratio mortgages require mortgage premiums to be paid in order to protect the lender, even though you are the one paying the premiums.
CMHC mortgage insurance might sound like a bother to have to pay, but it actually makes homeownership possible for countless Canadians who may otherwise be unable to afford a home purchase and secure a mortgage to finance such an investment.
CMHC – or Canada Mortgage and Housing Corporation – is one of three entities that issues mortgage default insurance in Canada, the others being Genworth Financial Canada and Canada Guaranty. However, while Genworth and Canada Guaranty are private insurance providers, CMHC is a federal corporation.
How Much Do They Cost?
Now that you know that mortgage default insurance is required in cases where the down payment is less than 20%, how much do the premiums actually cost? The fees that you would have to pay are based on the down payment amount you come up with. Generally speaking, the higher the down payment amount, the lower the fees. More specifically, here are the CMHC fees that are required based on various loan amounts:
- Up to and including 80%: 2.40%
- Up to and including 85%: 2.80%
- Up to and including 90%: 3.10%
- Up to and including 95%: Traditional Down Payment, 4.00%; Non-traditional down payment, 4.50%
Do I Have to Pay CMHC Fees If I Renew My Mortgage?
The answer to this question comes down to whether or not your mortgage was already insured. If your current mortgage is already being insured with mortgage default insurance, you may have to continue paying these premiums when you renew your mortgage if your loan amount has increased or you extended your amortization period (the time within which you have to fully repay your mortgage).
If you decide to switch lenders when you renew your mortgage, the mortgage default insurance can be transferred. You may be able to get a lower interest rate in exchange for having your mortgage insured because of the lower risk on the party of the lender. This is one of the perks of CMHC insurance, despite the fact that premiums must be paid, which are typically rolled into the mortgage.
How Can I Avoid Paying CMHC Fees Twice?
When your mortgage is due for renewal, you may choose to renew with your current lender or switch to another. But when you switch lenders, is there a chance that you could be charged twice for your mortgage default insurance?
In order to avoid paying CMHC fees twice when you renew your mortgage with a new lender, make sure to inform your new lender that your current mortgage already has mortgage default insurance. Request a certificate number for your current insurance policy from your current lender that you can show your new lender. If necessary, a lawyer may need to be involved to sign the registration documents that come with your mortgage contract.
How Can I Avoid Paying CMHC Fees?
As mentioned, CMHC insurance makes it possible for people to buy a home and get approved for a mortgage with a minimal down payment amount. Even as little as 5% of the purchase price of a home is enough to secure a mortgage for many borrowers. But for others, CMHC fees are a nuisance that they want to avoid from the get-go. The question is, how can you avoid having to pay these fees in the first place?
The most obvious way to avoid paying CMHC fees is to put at least 20% down when you buy a home. This way, no mortgage insurance is required, as the loan is considered less of a risk to the lender. You might also be able to avoid CMHC insurance when you refinance your mortgage and leave a minimum of 20% equity in the property.
There may also be a way to avoid these fees if you move to another home and take advantage of what’s known as a portability option. This can help eliminate the insurance premiums on a new insured home loan to purchase another property. At the very least, it may help to reduce the insurance fees being paid.
If your mortgage is expiring soon, it will be necessary for you to renew it (unless you’re ready to pay it off in full). At that time, you’ll have a choice to either remain with your current lender or switch to a new one. If you choose the latter, be sure that you’re not charged twice for mortgage default insurance, if your current mortgage is subject to it. While this insurance policy helps make it possible for you to afford a home purchase, you also shouldn’t have to pay any more than you need to.