CMHC vs. Private Insurance

Understanding Mortgage Default Insurance: CMHC vs. Private Insurance

When embarking on the journey of homeownership across Canada, one term that often surfaces is “mortgage default insurance.” This crucial element of the home buying process is designed to protect lenders in case the borrower defaults on their mortgage payments. In this blog, we will explore the intricacies of mortgage default insurance, compare the offerings of the Canada Mortgage and Housing Corporation (CMHC) with private insurance, and highlight why GLM Mortgage Group is the best mortgage partner for your mortgage needs.

What is Mortgage Default Insurance?

Mortgage default insurance, also known as mortgage loan insurance, is mandatory in Canada for homebuyers with a down payment of less than 20% of the home’s purchase price. This insurance protects lenders against potential losses if the borrower fails to make their mortgage payments. While it adds an extra cost to homebuyers, it also enables them to secure a mortgage with a smaller down payment, making homeownership more accessible.  

Insured Mortgages

Mortgage default insurance, also known as mortgage loan insurance, is mandatory in Canada for homebuyers with a down payment of less than 20% of the home’s purchase price. The insurance cost is paid by the borrower and is capitalized within the requested loan amount. Insured mortgages often come with the most competitive interest rates.

In Canada, there are three main providers of mortgage default insurance: the Canada Mortgage and Housing Corporation (CMHC), Sagen, and Canada Guaranty. CMHC is a government-owned corporation, while Sagen and Canada Guaranty are private insurers. While all three offer similar coverage, there can be differences in premiums, underwriting criteria, and additional benefits.

Insurable Mortgages

Mortgage default insurance is also available for homebuyers with a down payment greater than 20% of the home’s purchase price, provided the property is valued at less than one million dollars and the amortization period is no more than 25 years. In this case, the lender pays for the insurance. Insurable mortgages for properties under one million dollars with a 25-year amortization and a down payment of 20% or more will have a rate premium over insured rates, depending on the size of the down payment.

When it comes to choosing between CMHC and private insurers for mortgage default insurance, factors such as the specific terms of the insurance, the overall cost, and any additional features offered by the insurer can influence the decision. Both CMHC and private insurers aim to protect lenders against mortgage defaults, but the choice of insurer may impact the borrowing experience and overall cost.

 

CMHC: The Public Option

The Canada Mortgage and Housing Corporation (CMHC) is a crown corporation and the largest provider of mortgage default insurance in Canada. Established in 1946, CMHC has played a pivotal role in helping Canadians achieve homeownership. Here are some key features of CMHC mortgage default insurance:

1. Availability and Accessibility: CMHC insurance is available for both new and existing homes, making it a versatile option for many homebuyers.
2. Down Payment Flexibility: CMHC allows for down payments as low as 5% for homes priced under $500,000. For homes above this price, a higher down payment is required for the portion exceeding $500,000.
3. Standardized Premium Rates: CMHC has standardized premium rates that are based on the size of the down payment. These premiums can be added to the mortgage amount, making it easier for buyers to manage their upfront costs.
4. Assumable Mortgages: CMHC-insured mortgages can be assumed by qualified buyers if the homeowner decides to sell, potentially making the property more attractive to prospective buyers.

Private Mortgage Default Insurance

In addition to CMHC, there are private mortgage insurers in Canada, such as Sagen and Canada Guaranty. These companies provide similar services but with some distinct differences:

1. Competitive Rates: Private insurers often compete with CMHC by offering competitive premium rates and occasionally more flexible terms.
2. Specialized Products: Private insurers may offer specialized products tailored to specific segments of the market, such as self-employed individuals or those with non-traditional income sources.
3. Customer Service: Private insurers may provide more personalized customer service and faster turnaround times on insurance applications.
4. Flexibility in Underwriting: Private insurers might offer more flexibility in underwriting criteria, which can benefit borrowers with unique financial situations.

CMHC vs. Private Insurance: A Comparative Look

When choosing between CMHC and private mortgage default insurance, several factors come into play:

1. Cost: While CMHC has standardized rates, private insurers may offer competitive pricing that could result in lower premiums for some borrowers.
2. Service and Flexibility: Private insurers often provide more personalized service and may be more flexible in their underwriting criteria. This can be advantageous for borrowers with unique financial circumstances.
3. Product Offerings: Both CMHC and private insurers offer a range of products, but private insurers might have specialized products that better meet the needs of certain borrowers.
4. Reputation and Trust: CMHC, being a government entity, carries a significant level of trust and stability. However, private insurers like Sage and Canada Guaranty are well-established and reputable in the industry.

Why GLM Mortgage Group is Your Best Choice

Navigating the complexities of mortgage default insurance and choosing between CMHC vs. Private Insurance can be daunting. This is where GLM Mortgage Group comes in as your trusted partner. Here’s why GLM Mortgage Group stands out:

1. Expert Guidance: GLM Mortgage Group’s team of experts has extensive experience and knowledge of both CMHC and private insurance options. They can provide personalized advice tailored to your unique financial situation and homeownership goals.
2. Competitive Rates: By working with GLM Mortgage Group, you gain access to competitive rates and a wide range of mortgage products. They can help you find the best insurance option that fits your budget and needs.
3. Comprehensive Support: From the initial consultation to the final approval, GLM Mortgage Group offers comprehensive support throughout the mortgage process. Their team is dedicated to ensuring a smooth and stress-free experience for their clients.
4. Trusted Relationships: GLM Mortgage Group has established strong relationships with both CMHC and private insurers, enabling them to provide you with the best options and negotiate favorable terms on your behalf.
5. Client-Centric Approach: At GLM Mortgage Group, clients are at the heart of everything they do. Their commitment to exceptional customer service and personalized solutions ensures that you receive the highest level of care and attention.

Conclusion

Understanding mortgage default insurance and the differences between CMHC and private insurance is crucial for Canadian homebuyers to be aware of. While both options have their advantages, the choice ultimately depends on your specific needs and circumstances. Partnering with a knowledgeable and trusted mortgage advisor, like GLM Mortgage Group, can make a significant difference in navigating these complexities and securing the best mortgage solution for your homeownership journey.

GLM Mortgage Group’s expertise, competitive rates, comprehensive support, and client-centric approach make them the best choice for all your mortgage needs. Whether you are a first-time homebuyer or looking to refinance, GLM Mortgage Group is dedicated to helping you achieve your homeownership dreams with confidence and ease.