What Everyone in Canada Should Know About the CMHC

The CMHC or Canadian Mortgage and Housing Corporation is an integral part of the housing market in Canada. If you plan to buy a home in Canada in the foreseeable future, we recommend that you become familiar with what the CMHC can do for you. Many of its programs, such as the first-time home buyer incentive program, mortgage stress test, and CMHC mortgage insurance may affect your home-buying decision. Even renters as well as homeowners renovating their property may find CMHC programs useful. 

What is the CMHC and what does it do?

Established just after the end of World War II as a replacement for the Wartime Housing Corporation, it was at first named the Central Mortgage and Housing Corporation and focused on providing homes for returning war veterans [1]. Since then, the CMHC’s mission has been to make housing affordable for everyone in Canada. Their official mission is that “By 2030, everyone in Canada has a home that they can afford and that meets their needs.” [2] CMHC’s programs, tools and opportunities are available for anyone who lives in Canada, not just Canadian citizens [2].

CMHC‘s primary role is in providing mortgage loan insurance [3]. The organization also has programs for low-income home buyers and collects a variety of data about the housing market. They also provide information about indigenous and northern housing [5], sustainable and accessible housing [6] and renting a home [4].

The CMHC is a Crown corporation, which means that although it operates independently, it does have some ties to the government. A board of 12 directors, appointed by various government entities [7, 8], governs the corporation. The government officials on the board are the Deputy Minister of the Minister for CMHC and the Deputy Minister of Finance who report to the government. 

CMHC Mortgage Loan Insurance

If you want to buy a home and have less than the standard 20% down payment, you have to buy CMHC mortgage insurance. CMHC provides mortgage loan insurance that will cover an approved if the borrower defaults on the loan. Your lender applies for the mortgage loan insurance but the cost of the insurance premium is generally passed on to you by adding it to your mortgage monthly payments. The higher the mortgage amount is compared to the home value (LTV), the higher the insurance premium[9]. 

You can calculate what the CMHC mortgage insurance premium will be for a particular selling price and down payment amount. In Manitoba, Quebec, Ontario and Saskatchewan, the insurance premiums are subject to provincial sales tax that cannot be included in your mortgage amount [9]. This means that you will have to pay it upfront as part of your closing costs.

First-time Home Buyers Incentive (FTHBI)

If you’re a first-time home buyer (see Wowa FTHBI page for the definition of this) and don’t have the 20% down payment on a home, the government can partner with you to buy your home through the First-time Home Buyers Incentive introduced in 2019. Administered by the CMHC, the FTHBI lets the government pay either 5% or 10% of the down payment in return for an equivalent stake in your home. When you sell your home, or in 25 years if that comes first, the government will claim the same percentage of any profit (or loss) that you make. [10]. To qualify, your household income must be less than $120,000 and you must have at least a 5% down payment contribution of your own. You can calculate if you’re eligible for the FTHBI here.

CMHC Newcomers program

The CMHC Newcomers program allows new residents of Canada to buy their first home. Without an established credit rating or a history of employment in Canada, it’s often difficult to qualify for a mortgage. This program helps newcomers (permanent and non-permanent) to buy the housing they can afford through access to a mortgage [11]. The Newcomers program doesn’t require a minimum length of time in the country and offers several ways to establish your creditworthiness beyond having a minimum credit score of 600. You may be able to provide an international credit record or confirmation of your rental payments for the previous 12 months plus one other financial obligation instead [12]. In addition, the program offers a series of fact sheets and guides that can help lead newcomers through the process of renting or buying their home [13].

CMHC Stress test

Since January 2018, everyone who applies for a mortgage or wants to refinance their mortgage (in certain cases) has to pass the CMHC Stress test. This test helps protect the Canadian economy by ensuring that home buyers will be able to afford their mortgage payments if interest rates rise, a significant possibility given that current interest rates are at a historic low. As a mortgage applicant, you will need to provide financial documents that show you can meet the mortgage payments if your mortgage rate goes up by 2% or becomes equivalent to the Bank of Canada 5-year mortgage stress test rate [14], which is 5.19% as of January 2020 [15]. This may mean that your maximum mortgage amount is less than you planned for, so do the stress test calculation before you look for a home.

Canada Mortgage Bond program

CMHC also works to enhance reliable funding resources for mortgages through the Canada Mortgage Bond (CMB) program. The CMB is a coupon-paying, bullet maturity bond guaranteed by CMHC, with interest paid semi-annually (at a fixed interest rate) or quarterly (at a floating interest rate). The proceeds from the sale of the CMBs are used to buy insured eligible residential loans. The Government of Canada through CMHC [16,17] irrevocably guarantees both the interest and the principal payment of the CMBs. CMBs maturing in December 2023 have an interest rate of 2.550% while those maturing in June 2024 have a rate of 2.900% [18].

Green Home program

If you have taken out CMHC mortgage loan insurance to buy, build or renovate your home, make sure you consider the energy efficiency of your property. The Green Home program offers a rebate of up to 25% of the mortgage insurance premiums if your home meets the eligibility requirements that include whether the property is suitable for year-round occupation, your creditworthiness and your mortgage details [19].

The bottom line

If you think that one or more of the CMHC’s offerings apply to you, it’s worth taking a few hours on the CMHC website or Wowa real estate tools to investigate more fully how you might benefit financially and add to your knowledge. Doing this as part of your research before you start looking for a home will set you up for a realistic and successful house-hunting journey.


Resources 

  1. Canadian Mortgage and Housing Corporation. The Canadian Encyclopedia. 
  2. What does CMHC do? CMHC.
  3. Data and Research. CMHC. 
  4. Renting in Canada. CMHC. 
  5. Funding Opportunities Tool for Indigenous Housing. CMHC
  6. Developing Sustainable Housing. CMHC. 
  7. Management and Governance. CMHC.
  8. Governor in Council and Ministerial Appointments. Government of Canada. 
  9. CMHC Mortgage Loan Insurance Costs. CMHC.
  10. The First-Time Home Buyer Incentive. CMHC.
  11. CMHC Newcomers. CMHC.
  12. Newcomers Fact Sheet: Mortgage Loan Insurance. CMHC.
  13. Newcomers: Welcome to Canada. CMHC. 
  14. New Mortgage Rules in Canada. TD Bank.
  15. Daily Digest. Bank of Canada.
  16. Canada Mortgage Bonds. CMHC.
  17. CMB Program Guide. CMHC.
  18. Bank of Canada Holdings: Mortgage Bonds. Bank of Canada.
  19. CMHC Green Home. CMHC.
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1 Response

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