In May of last year, the Canadian Mortgage and Housing Corporation (CMHC) increased the premium on its mortgage loan insurance. Mortgage Loan Insurance, better known as CMHC Insurance, is mandatory for homeowners who provide a 5% to 19.99% down payment on the purchase of a property. The premium has been increased by approximately 15% for all down payment scenarios, as follows:
Unfortunately, this information does not answer the frequently asked questions of readers, our friends and even real estate brokers who want to understand exactly how their investment actually affects their CMHC insurance and the monthly costs and interest associated with it. To answer this question, we enter the national average price of a home ($ 416,584) in our monthly mortgage payment calculator. Here’s what we can tell you:
The minimum investment you can make in Canada is 5% of the price of the property. If you can afford only 5% to 9.99%, you will be subject to the highest CMHC loan insurance premium (3.15% of the purchase price of the property including your downpayment). In this example, if you want to provide 5% equity you will only have to save $ 20,829 to buy the house, but your loan insurance premium will cost you $ 12,466.
This equates to 3% of the purchase price of the property ($ 12,466 / $ 416,584), which means that you actually deposit only 2% down payment on the purchase price of the property. Your loan insurance premium is then added to your mortgage and you repay it over the life of your loan, which is why your monthly payments and your interest charges are higher in this scenario.
If you are unsure of a 5% or 10% down payment, you should always aim to provide the largest amount possible. In this case, you will have to save double the amount you had for 5% of your investment, but your CMHC loan insurance premium will have dropped to $ 8,998. This equates to 2.2% of the purchase price of the property ($ 8,998 / $ 416,584), which means that you actually deposit a deposit equal to 7.8% of the purchase price of the property.
By depositing 10% instead of 5%, you save $ 3,648 on your loan insurance premium, $ 112 on your monthly payments and $ 9,381 on the total interest charge amount. These amounts seem unimportant at first sight, but the amount you save on your monthly payments can be a supplement in your new owner budget.
$ 15 down payment
The difference between an investment of 10% and 15% is lighter than between 5% and 10%. However, in this case, you will have to save triple the amount if you had 5% of your investment, but your loan insurance premium will drop to $ 6,374, which is almost half the amount that you will have to pay with a 5% down payment and is equivalent to only 1.5% of the purchase price ($ 6,374 / $ 416,584), which means that you deposit an amount equivalent to 13.5% of the purchase price of the property.
When you contribute 15% instead of 10%, you save $ 2,444 more on your loan insurance premium, $ 109 in monthly payments, and $ 9,056 in total interest charges. As we have already mentioned, the difference is not as big as the difference between a 10% down payment and a 5% down payment, so if you try to make the choice between 10% and 15% It is normal that it is a difficult decision.