What is CMHC mortgage insurance and when do I need it in British Columbia?
This answer covers the law of British Columbia.
CMHC mortgage loan insurance, also called default insurance, protects the lender if you cannot make payments, and it is typically needed if your down payment is less than 20% of the purchase price. A lender may still require insurance with 20% down, usually if you are self-employed or have a poor credit history. The lender pays the premium but likely passes the cost to you, and you can pay a lump sum or add it to the mortgage and pay over time.
Under CMHC's homeowner-loan schedule, the premium is a percentage of the total loan amount that rises with the loan-to-value ratio, from 0.60% up to 65% LTV to 4.00% at 90.01 to 95% LTV. The premium is a one-time charge that may be added to the insured loan. Insurance is not available on homes priced at $1.5 million or more, so you would need 20% down and an uninsured mortgage. Rental or investment properties are not eligible for CMHC's 5%-down homeowner product.
How BC PST applies to the premium depends on your lender and the details of your purchase, so confirm it with your lender or an accountant before you close.
Key takeaways
- Mortgage loan insurance protects the lender, not you, if you cannot make payments, even though the cost is likely passed on to you.
- It is typically needed with less than 20% down, and a lender may require it even with 20% down if you are self-employed or have poor credit.
- The premium is a one-time charge based on the total loan amount and loan-to-value ratio, and it may be added to the insured loan.
- Ask your lender or an accountant how BC PST applies to your premium, since it depends on your situation.