Mortgage default insurance, (CMHC insurance), is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders, in the event a borrower ever stopped making payments and defaulted on their mortgage loan.
Although this insurance will end up costing the homebuyers between 2.80% to 4.00% of their mortgage amount, it does allow Canadians access to the Canadian real estate market. Lenders are able to offer lower mortgage rates when mortgages are protected as the risk of default is passed along to the mortgage insurer.
Mortgage default insurance providers in Canada:
The Canada Mortgage and Housing Corporation (CMHC)
There are some requirements you have to meet in order to qualify for mortgage default insurance:
The maximum amortization for insured mortgages is 25 years.
If the purchase price is between $500,000 - $999,999 a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% of the remaining amount.
Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% down payment is required on these homes.
New equirements in order to be approved for CMHC coverage.
Have a Gross Debt Service ratio of less than 35
Have a Total Debt Service ratio of less than 42
Have a credit score of at least 680
Must not borrow money for their down payment
Mortgage default insurance is financed through your mortgage and it does not require a lump sum cash outlay at the time you purchase your home. Instead, your mortgage default insurance premium is added to your mortgage amount and paid off over the life of your loan.