Canada Mortgage and Housing Corporation: Buyers Guide: Lee Smithson

CMHC – helping with the Canadian dream

As the Government of Canada's national housing agency, Canada Mortgage and Housing Corporation (CMHC), plays a major role in Canada's housing industry. The agency offers numerous housing services including research services, market evaluations, and access to affordable financing choices. Programs include aboriginal housing, residential rehabilitation assistance, home adaptation for seniors independence, public and private partnerships and numerous grants and awards.

For many people, especially first time home buyers, saving the necessary down payment is a challenge. Additionally, with less than 25% of the purchase price to put down, a lender requires mortgage insurance for protection against any payment defaults. CMHC makes it easier for Canadians to obtain a home, by providing mortgage loan insurance. By providing this insurance, CMHC limits the lenders’ risk, allowing the lender to finance up to 95% of the purchase price of a new home. You can purchase a property with as little as 5% down. If the cost is $150,000, you only need a down payment of $7,500.

You can become a homeowner, even if you don’t have a large down payment put aside. You just need to meet the following conditions and home ownership can be within your reach.

The home must be located in Canada and considered your principal residence.
You must have a down payment of at least 5% of the purchase price.
Your home-related expenses must not exceed 32% of gross household income
Your total monthly debt load must not exceed 40% of gross monthly household income
You must be able to pay closing costs equal to at least 1.5% of the purchase price.

An affordable form of insurance

The premium you will pay for your CMHC mortgage insurance is calculated as a percentage of the loan and is based on your down payment as a percentage of your home’s purchase price. Fees range from 0.5% to 3.75%; a .50% surcharge is added to the premium if multiple advances are required. You can pay this premium in a single lump sum, or it can be included in your monthly payments, along with the application fee.

Loan Size	Single	Multiple
% of purchase price	advance	advance
Up to 65%	0.50%	1.00%
Up to 75%	0.55%	1.25%
Up to 80%	1.00%	1.75%
Up to 85%	1.75%	2.50%
Up to 90%	2.00%	3.00%
Up to 95%	2.75%	4.25%

Note: A multiple advance may be necessary in a new home purchase or mortgage plus home improvement type loans. E.g. $100,000 for house, $10,000 for improvements.

How much can you afford?

Work through the following worksheet to see what you can afford.

Calculating Gross Debt Service (GDS)

With this calculation, you can estimate the maximum home-related expenses you can afford to pay each month. The total should not be over 32% of your gross monthly household income.

Example:
Monthly mortgage payment			$750.00
(principal and interest)
Property taxes			$180.00
Heating costs			$105.00

Total monthly payments			$1,035.00
Gross monthly household income			$4,500.00

GDS = Total monthly payments (x 100) ----------------------------------------------------- Gross monthly income			= 23%

$1,035.00 (x 100) ------------------------ $4,500			= 23%

Calculating Total Debt Service (TDS)

This calculation allows you to estimate the maximum debt load you can carry each month. The TDS should not be over 40% of your gross monthly household income.

Example:
Total monthly housing costs (as noted above)			$1,035.00
Other debts, (personal loans, car loan, Credit cards, etc)			$450.00

Total monthly debts			$1,485.00
Gross monthly income			$4,500.00

TDS = Total monthly debts (x100) --------------------------- Gross monthly income			= $33%

$1,485 (x 100) ----------------------------- $4,500			= 33%

Your monthly mortgage payments

To calculate your monthly mortgage payments, consider the amount borrowed, the interest rate and the amortization. Use our handy mortgage calculator to calculate your monthly payments.

Simply multiply (x) by the mortgage amount. Eg. $90,000 x 5.67 / 1,000= $510.30
($90,000 mortgage, amortized for 25 years (5.67) ) @ 4.75% interest.

Cost Per Thousand Dollars Borrowed
%	10 years $	15 years $	20 years $	25 years $
4.00	10.11	7.38	6.04	5.26
4.25	10.23	7.50	6.17	5.40
4.50	10.34	7.63	6.30	5.53
4.75	10.46	7.75	6.44	5.67
5.00	10.58	7.88	6.57	5.82
5.50	10.82	8.14	6.84	6.10
5.75	10.94	8.27	6.98	6.25
6.00	11.07	8.40	7.12	6.40
6.25	11.19	8.53	7.26	6.55
6.50	11.32	8.67	7.41	6.70
6.75	11.44	8.80	7.55	6.86
7.00	11.56	8.94	7.70	7.01
7.25	11.69	9.07	7.84	7.16
7.50	11.82	9.21	7.99	7.32
7.75	11.94	9.35	8.14	7.48
8.00	12.07	9.49	8.29	7.64
8.25	12.20	9.63	8.44	7.80
8.50	12.33	9.77	8.59	7.96
8.75	12.45	9.91	8.74	8.12
9.00	12.58	10.05	8.90	8.28
9.25	12.71	10.19	9.05	8.45
9.50	12.84	10.34	9.21	8.62
9.75	12.98	10.48	9.36	8.78
10.00	13.11	10.63	9.52	8.95
10.25	13.24	10.77	9.68	9.12
10.50	13.37	10.92	9.84	9.29
10.75	13.51	11.07	10.00	9.45
11.00	13.64	11.22	10.16	9.63
11.25	13.78	11.37	10.32	9.80
11.50	13.91	11.52	10.49	9.98
11.75	14.05	11.67	10.65	10.15

This article compiled with information obtained from CMHC. This information contained in this article is believed to be accurate, but not warranted to be so.