Does renewal requires paying CMHC insurance? - RedFlagDeals.com Forums (2024)

My sister's house downpayment was 5% and she needed CMHC insurance. Now, it is renewal time for her. She has already paid the 20% of the house value, does she need to still pay the insurance amount for her new mortgage?

"Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan."

rfduser123 wrote: ↑No, the CMHC insurance premium covering the entire duration of the mortgage was paid at mortgage initiation, usually added to the mortgage amount. You don't pay each time you renew.

when you say mortgage duration, you mean the entire initial amortization (25y or 30y) or the closed mortgage term (1y-5y)?

Elfwood wrote: ↑when you say mortgage duration, you mean the entire initial amortization (25y or 30y) or the closed mortgage term (1y-5y)?

The CMHC insurance was paid upfront when the original mortgage was taken out. So if the mortgage is renewed, which means continuing on with the same amortization period, then CMHC insurance still applies. So for example, if the original mortgage was a 5 year term at 25 year amortization, then renewing would have 20 years remaining (even if you sign into a 1 or 3 year term). You can renew with different lenders as well - you do not need to stay with the same bank for the entire 25 years.

However, if you choose to refinance the mortgage at any time, then the CMHC insurance is gone. Refinancing means adding more money to the mortgage, or changing the amortization period to reduce monthly payments (e.g., moving back to a 25 or 30 year amortization). Just wanted to note this, since many people do re-extend their amortizations to help lower monthly costs, but this technically removes the CMHC insurance.

Remember though, that CMHC actually protects the bank, not you. It's designed to pay the bank back in case you default, but does not give you as the house owner any real protection. The main benefit in my mind is that CMHC insured mortgages usually qualify for slightly lower mortgage rates, but nothing earth shattering.

covergirl wrote: ↑My sister's house downpayment was 5% and she needed CMHC insurance. Now, it is renewal time for her. She has already paid the 20% of the house value, does she need to still pay the insurance amount for her new mortgage?

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"Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan."

The insurance policy is for the life of that specific mortgage (meaning you don't REFINANCE and get a new mortgage).

If you do a simple renewal or a simple mortgage transfer, the policy is still in effect and you do not have to pay an additional premiums.

covergirl wrote: ↑My sister's house downpayment was 5% and she needed CMHC insurance. Now, it is renewal time for her. She has already paid the 20% of the house value, does she need to still pay the insurance amount for her new mortgage?

"Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan."

Should have been explained to her the first time around. It's a one time shot. End of story. Guess the banker was not doing his/her due diligence in explaining details.

Default insurance (provided by CMHC, Sagen, or Canada Guaranty) is a percentage based lump sum amount added to the mortgage at the time of funding. It is technically paid for over the life of the mortgage.
If she were to remortgage (take out some equity) she would sacrifice the insurance paid initially and lose the access to the lowest advertised rates for the duration of her time living in that home - only being able to access those rates again if she were to purchase another home.

If she renews or switches to a different lender then she can keep her low rate and not have to pay anything other than legal fees.

If she sells this house and buys a new one with less than 20% down still - she can do a top up to her default insurance and keep the low rates without paying the entire amount of default insurance again and rather just a smaller amount to cover the increase in the mortgage.