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Understanding Canadian Mortgages and CMHC Insurance

In Canada, most homebuyers finance their purchase with a mortgage amortized over 25 or 30 years, though the mortgage term (the period your rate is locked in) is typically much shorter at 1 to 5 years. At the end of each term, borrowers renew their mortgage, often negotiating a new rate. The minimum down payment in Canada is 5% for properties up to $500,000, plus 10% on any portion between $500,000 and $999,999, while properties at $1 million or more require at least 20% down.

CMHC Mortgage Insurance

When your down payment is less than 20% of the purchase price, Canadian law requires mortgage default insurance, commonly called CMHC insurance (though Sagen and Canada Guaranty also provide it). The premium is calculated as a percentage of the mortgage amount: 4.00% for down payments of 5% to 9.99%, 3.10% for 10% to 14.99%, and 2.80% for 15% to 19.99%. This premium is typically added to the mortgage balance, increasing your monthly payments slightly. With insurance, the maximum amortization is capped at 25 years.

The Stress Test

All Canadian mortgage borrowers must pass the mortgage stress test, qualifying at the higher of 5.25% or their contract rate plus 2%. This means even if your offered rate is lower, your lender must confirm you can afford payments at the stress test rate. The test applies to purchases, refinances, and lender switches, ensuring Canadians can handle potential rate increases.

Use this calculator to see how different down payment amounts and rates affect your monthly payment. A larger down payment not only reduces your loan but can eliminate the CMHC premium entirely, saving thousands over the life of the mortgage.