Mortgage Insurance Calculator – MoneySense
If you are buying a home and have a down payment of less than 20%, you will need to purchase mortgage default insurance, also known as mortgage default insurance or CMHC mortgage default insurance (named after Canada Mortgage and Housing Corporation, one of three providers of mortgage default insurance in Canada). Ultimately, all three terms refer to insurance that protects the lender if you become unable to make your mortgage payments.
Read on to find out how mortgage insurance works, how much it costs, and how to calculate your mortgage insurance premium and fees.
What is Mortgage Loan Insurance (CMHC Insurance)?
Mortgage loan insurance protects the lender if you, the borrower, stop making your mortgage payments or breach the terms of your mortgage contract. It is not the same as Mortgage Life Insurance, Mortgage Protection Insurance or Mortgage Disability Insurance…forms of insurance that help cover your mortgage balance if you die or become unable to work due to serious illness or injury.
Mortgage loan insurance can total thousands of dollars; however, it is mandatory for homebuyers with less than 20% down payment. The upside is that because insurance makes the mortgage less risky for lenders, it can mean getting a more favorable interest rate on your mortgage.
Homes valued at $1,000,000 or more (for which buyers must put down at least 20% as set by the Government of Canada) are not eligible for loan insurance mortgage.
How much does mortgage loan insurance cost in Canada?
The cost of mortgage default insurance is tied to the amount of money you borrow for your mortgage.
To find out how much you’ll pay, you first need to determine your loan-to-value ratio (LVR) by dividing the amount of your mortgage by the purchase price of the home. (To determine your mortgage amount, subtract your down payment from the purchase price.) For example, if you have a 5% down payment, the loan-to-value ratio is 95% – another way of saying that your mortgage mortgage represents 95% of the value of your home.
Your mortgage loan insurance premium is calculated based on the loan-to-value ratio. For property insurance with a down payment of less than 20%, your premium will be between 2.8% and 4% of your mortgage amount. The premium is the same for all three mortgage loan insurance providers in Canada.
If you have a down payment of more than 20% (in the table below, these scenarios are marked with an asterisk), you will not have to pay mortgage insurance. However, your lender may choose to buy it anyway.