Financial institutions are required to insure mortgages where the down payment is less than 20%. This insurance protects the lender from loss if a borrower defaults on their mortgage. This in turn creates a more stable banking industry, but one that is still able to provide mortgages to buyers with less than 20% down payment. Effective July 9, 2012, all new mortgages requiring approval and insurance with Canada Mortgage Housing Corporation (CMHC), Genworth Financial Mortgage Insurance Company Canada (formerly GE Capital Mortgage Insurance Company), or Canada Guaranty Mortgage Insurance Company will be amortized over a maximum of 25 years. The purchase price or value of the home must be $1,000,000 or lower. If you obtained an insured mortgage prior to this date, then your remaining amortization and balance will be grandfathered.
Effective February 15, 2016, the minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.
For example, a home costing $700,000 would require a $45,000 down payment – a 5% down payment on the first $500,000, added to a 10% down payment on the remaining $200,000.
CMHC / Genworth / Canada Guaranty Premiums
Premiums are calculated as a percentage of the mortgage and depend on the amount of down payment. The lower the down payment is, the higher the premiums will be. The premiums are usually added to the loan amount.
|Down Payment||25 Year Amortization – Premium on Total Loan|
|15% to 19.99% of purchase price||2.80%|
|10% to 14.99% of purchase price||3.10%|
|5% to 9.99% of purchase price||4.00%|
|Minimum Down Payment Guide for Home Purchase Price over $500,000|
Home Purchase Price
Minimum Down Payment Percentage
Minimum Down Payment Amount
|$500,000 and below||5.0%||up to $25,000|
|$1,000,000 and above||20.0%||$200,000 & up|
Historical Changes to Amortization
|25 years||July 9, 2012|
|30 years||March 18, 2011|
|35 years||October 15, 2008|
|40 years||December 15, 2006|
|35 years||June 28, 2006|
|30 years||Pilot program for certain lenders running from early 2006 to June 28, 2006|
|25 years||Prior to 2006|
If you obtained an insured mortgage prior to July 9, 2012, your remaining amortization will be grandfathered, even if it is more than the new maximum allowed.
You obtained an insured mortgage with a 40 year amortization in October 2008 and your term is coming to an end in October 2013. On renewal, your remaining amortization will be 35 years and your minimum monthly payment will be calculated accordingly.
Switching lenders before term ends
You may wish to switch lenders for a lower rate, different mortgage options or other reasons before your renewal date. It is possible to do so and maintain your existing amortization. You are allowed to break your existing term and rate as long as you pay for any applicable penalties and fees and the mortgaged amount remains the same or lower. This is subject to the new lender’s approval. The new lender will re-qualify you to see if you currently meet their guidelines. Once there is new money involved, that is, if the amount of your mortgage increases, then the new guidelines will apply.
Your current mortgage balance is $300,000 at a rate of 4.80%. The remaining amortization on your mortgage is 32 years. You want to switch your mortgage to another lender to get a rate of 3.40%. Your current lender has told you the interest differential penalty to break your term is $12,000.
If you pay the $12,000 up front and maintain your current balance of $300,000, then you should be able to keep the 32 years amortization remaining.
If you do not wish to pay for the $12,000 penalty up front and want to roll the penalty amount into your mortgage, making the total balance $312,000, the new guidelines will apply and your amortization will be reduced to 25 years.
In a refinance, the mortgage amount is increased and therefore, the 25 year amortization will apply. CMHC will not insure refinances where the new mortgage represents more than 80% of the current value of the home.
Last year you bought a home for $300,000 and put 15% down, or $45,000. Your mortgage was initially 85% of the property value and CMHC insured your mortgage. Your principal payments over the past year have lowered your mortgage balance by $10,000; your outstanding balance is $245,000. You now want to consolidate your credit cards and other debts into your mortgage. If the value of your home is still $300,000, then you would not be able to take on a higher mortgage amount as the current loan to value ratio is 81.7%. If the value of your home increased to $325,000, you may take out $15,000 of equity from your home, bringing the total mortgage to $260,000, or 80% of its current value.
Assuming that your current mortgage has a portability clause, CMHC will allow you to sell your current home and move the insured mortgage to your new home. If you are porting the existing mortgage and increasing the mortgage amount, CMHC premiums will apply to the new money, the difference between the mortgage balance on your old home and the desired mortgage amount on your new home.
If porting the exact mortgage amount, then you should be able to maintain your current remaining amortization.
Similarly, if porting and decreasing the mortgage amount, then, by using prepayment privileges either before or after porting, you should be able to maintain your current remaining amortization.
If porting and increasing the mortgage amount and the mortgage represents more than 80% of the value of the new home, then the 25 year maximum amortization will apply.
If you are paying out, or have recently paid out, an insured mortgage and will be taking on a new insured mortgage, please contact us as you may be eligible for a rebate or lower premiums.
Assuming a mortgage
Mortgage assumption entails taking over the obligations of the previous owner’s or builder’s mortgage when you buy a property. If you are buying a home with an existing mortgage and the mortgage has a longer amortization, you may be able to assume the mortgage and longer amortization. This is subject to the lender approval and must be a feature of the current mortgage. CMHC does not re-qualify on an assumption; this decision will be made solely by the lender based on whether or not you meet the lender’s criteria for qualification.