When buying a home the amount you use as a down-payment can have a significant impact on your mortgage – and putting less than 20% down can cost you thousands of dollars over the course of your mortgage.
The reason? When your down-payment is under 20%, you are required to take out mortgage insurance by law – this is Government imposed, so every single lender must charge it.
This insurance is normally imposed through a Government run organisation called CMHC – so this is the answer to the common question ‘What Is CMHC?’. This insurance is added on to your mortgage (you don’t pay it upfront like land transfer tax)
WHAT DOES THIS MEAN FOR YOUR MORTGAGE?
This means that the down-payment you have when your first sign your mortgage is very important and getting a little bit more for your down-payment can potentially save you a lot of money.
Here are the current rates and what you’d expect to pay based on a few different mortgage sizes:
You can see the rates in the table above and the CMHC would cost you for different down-payments and mortgage sizes.
If you are putting 20% or more down, you are not required to take this out.
If your down-payment was 14%, finding that extra 1% to get the down-payment up to 15% is going to be very worthwhile. As you can see from the table above, this extra 1% of down-payment will save you $3,000 in CMHC costs!
3 IMPORTANT POINTS ABOUT CMHC:
- Once you sign your mortgage and CMHC is added on, it can’t be removed – it is on there for the life of the mortgage. So if you had a large sum of cash coming in the near future, you should mention this to your mortgage broker – it might be better to get a 2nd mortgage and save you considerably money on CMHC insurance…
- People spend a lot of time trying to save 0.1% or 0.2% on their mortgage – this CMHC insurance cost is between 1.8% and 3.6% – so it can add up to significantly more.
- Make sure you’re aware of this additional cost when buying and think about your down-payment level and what it means and think about how you can potentially reduce it.
If you have any questions or need any advice on CMHC insurance then reach out to us at email@example.com