CMHC – yes or no

by | Nov 2, 2006 | Buying, Mortgage & Finances

This is an article that was posted on the CMHC website. It’s an interesting article showing you the difference between having CMHC involved or not. I am posting this article solely on the fact that there were all these “hidden” fees if you didn’t go through CMHC. Something to ask about and look for. HEADS UP!Spend less money — and buy your home sooner!
With CMHC mortgage loan insurance, your lower down payment helps you to buy your own home sooner — and access the most competitive interest rates in the market.Mortgage amount: $100,000
Term: 3 year — closed
Down payment: 10%Scenario A:

  • Paul finances his mortgage using CMHC mortgage loan insurance.
  • This gives him access to a 5.6% interest rate*.
  • Paul pays a mortgage loan insurance premium of 2% of the loan amount ($2,000), which can be added to the mortgage amount.
  • Based on this interest rate, Paul’s monthly payment is $616.23.

Scenario B:

  • Paul’s brother Marc finances his mortgage without mortgage loan insurance, through a lender that can offer home financing without requiring a down payment greater than 25%. Because the lender is not insured against borrower default, it is likely that Marc will pay a higher rate of interest than Paul in scenario A — approximately 6.6%*.
  • The lender typically also charges a one-time administration fee of 3% of the loan amount to compensate for the additional risk. In this case, Marc paid a $3,000 administrative fee.
  • Based on this interest rate, Marc’s monthly payment is $675.90.

*Based on actual April 2005 interest rates posted by a large National Lender using mortgage loan insurance and a smaller Lender who offers mortgage financing without requiring mortgage loan insurance.

Conclusion: After these first three-years:

Under Scenario B, Marc would pay an additional $2,915.46 in interest, as well as the extra $1,000 up front.
Under Scenario A, Paul’s savings from the lower interest rate alone more than offset the cost of the mortgage loan insurance premium.

Disclaimer from CMHC: Despite our best efforts, CMHC cannot guarantee that the information is accurate or complete or that it is up to date at all times.

 

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