The Mortgage Default Insurance BC, which is commonly referred to as 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 mortgage default insurance costs homebuyers 2.80% – 4.00% of their mortgage amount, it does allow Canadians, who might not otherwise be able to purchase homes, access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance, because the risk of default is passed along to the mortgage insurer. Access the Vancouver CMHC Default Insurance Calculator.

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.

Can You Avoid or Eliminate CMHC Premiums?
Mortgage insurance is automatically worked into your mortgage when you put less than 20% down towards the purchase price. There is a way to avoid paying this type of mortgage, by putting a minimum of 20% as a down payment. It’s also possible to avoid CMHC insurance if you refinance your mortgage and leave at least 20% in the home.

You may be able to save money by requesting a shorter amortization period. Generally speaking, the longer the amortization period, the higher the risk for the lender. As such, the insurance premium will likely be higher. Basically, higher risk equals higher fees.

CMHC insurance premiums can also be reduced or even eliminated if you move to another house thanks to a “portability option.” This helps to reduce or get rid of the premium on a new insured mortgage to buy another house. That said, it’s important to check with your lender to find out the exact terms and conditions of mortgage portability for a particular mortgage package.

Contact Agnieszka Stryjecka for more detailed information on Vancouver Real Estate.

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