Real Estate

Calculate Your Mortgage Insurance Using Cmhc Down Payment Calculator

By Satbir Bhullar 04 Jun, 2024 402

Planning to buy a new home? With soaring real estate costs, buying a home in Canada may seem unachievable. If you are already paying rent, you are at least somewhat familiar with the challenges of handling large monthly expenses. When getting ready to buy a home, those monthly expenses are not the problem, but saving for a down payment is.

No matter, you are a first time homebuyer or buying your second or third property, it will take at least 20% down payment to avoid having to pay for CMHC mortgage insurance. This means, you’ll at least need to save $100,000 to reach the quota, excluding the closing fee.

What is CMHC insurance/ mortgage default insurance? 

The mandatory 20% down payment can be avoided in one way, i.e. by paying CMHC insurance or mortgage default insurance provided by the Canadian Mortgage and Housing Corporation or CMHC. 

For those planning to buy a home worth less than $1 million and put down less than 20% of the total value, mortgage default insurance is mandatory. In the unlikely event that you are unable to make your mortgage payments, it safeguards the lender.

How to decrease your mortgage default insurance?

  • Reduce your amortization period

Using an amortization calculator, generate different amortization schedules showing what your monthly payments would be over time using different amortization length scenarios. It's important to know that the maximum duration of a mortgage for any down payment less than 20% is 25 years.

  • Increase your down payment

You can use our down payment calculator to see how larger and smaller down payments will affect the amount of mortgage default insurance you will require.

How to exempt from paying CMHC insurance? 

Making the entire 20% down payment is the only practical option to totally avoid having to pay for mortgage default insurance. In case you don't have much money, you can attempt to save some: 

  • Utilize your RRSPs, keeping in mind that early withdrawals may be subject to a tax penalty. 

  • Apply your income tax refund to your RRSP if you contributed a significant amount. 

  • Use a private mortgage lender. Although their interest rates and other expenses will be higher, they do not impose CMHC fees.

Conclusion

Initially, your aim when saving for a home was to purchase one. Whether or not you had a set timeframe in mind, you can reach your objective more quickly by paying the additional CMHC fee. If you take the time to consider your options, that might not be a bad thing. 

To determine how much you can afford when buying a property in Canada, consult Satbir Bhullar, an award winning mortgage broker in Abbotsford and Surrey, who can engage with lenders to find you the best deal possible. Give me a call anytime to determine your monthly mortgage amount, and be truthful with yourself regarding your ability to afford a mortgage. Meanwhile, you can calculate your mortgage amount using our CMHC down payment calculator that provides accurate results.