KAMLOOPS REAL ESTATE
HOME BUYER'S GUIDE: CMHC MORTGAGE LOAN
Helping with the Canadian Dream
The Government of Canada's national housing agency, the Canada Mortgage and Housing Corporation (CMHC), plays a major role in the real estate industry. As a home buyer you can take advantage of the numerous resources available including home research services, market evaluations, and access to affordable financing options. Programs include: aboriginal housing, residential rehabilitation assistance, adaptation for seniors' housing needs, public and private partnerships, in addition to numerous grants and awards.
CMHC makes it easier for Canadians to obtain a home by providing mortgage loan insurance. For many people, especially first time home buyers, saving for a down payment is a challenge. When a home buyer has 20% or less of the purchase price to put down, a lender requires mortgage insurance for protection against any payment defaults. CMHC provides this insurance for you, the home buyer, to limit the lenders' risk. The lender will then agree to finance up to 95% of the purchase price of your new home. You can then purchase a property with as little as 5% down! For example, if the cost of your home is $250,000, you only need a down payment of $12,500.
This allows you to 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 which may include utilities, property taxes and condo fees, if applicable
- Your total monthly debt load must not exceed 40% of gross monthly household income; debt such as personal loans, car payments and credit cards would need to be factored into this percentage
- You must be able to pay closing costs equal to at least 1.5% of the purchase price; closing costs may include lawyers' fees, GST, land transfers, and more
An Affordable Form of Insurance
To determine your CMHC Mortgage Loan Insurance premium, your mortgage representative will calculate a percentage of the loan based on the size of your down payment. This means if you put a smaller down payment on your home, you'll pay a higher percentage in insurance premiums. Alternatively, if you put down a deposit of greater than 20% of the total cost of the home, you are not required to have CMHC Mortgage Loan insurance. CMHC Mortgage Loan Insurance premium fees tend to range from 0.5% to 2.9%. Typically your mortgage insurance premium can be paid as a lump sum annually or can be included into your monthly mortgage payments. Your mortgage advisor will be able to determine what will work best for you. Important 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, $10,000 for improvements).
How Much Can You Afford?
Work through the following worksheet to see what you can afford.
Calculating Gross Debt Service (GDS)
With this calculation, you can estimate the maximum home-related expenses you can afford to pay each month. The total should not be over 32% of your gross monthly household income.
|Monthly mortgage payment (principal and interest)||$ 750.00|
|Property taxes||$ 180.00|
|Heating costs||$ 105.00|
|Total monthly housing costs||$ 1,035.00|
|Gross monthly household income||$ 4,500.00|
|Total monthly payments / Gross monthly income (x 100)||GDS|
|$ 1,035 / $ 4,500.00 (x 100)||= 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.
|Monthly housing costs (as noted above)||$ 1,305.00|
|Other debts (personal loans, car loans, credit card, etc.)||$ 450.00|
|Total monthly debts||$ 1,485.00|
|Gross monthly household income||$ 4,500.00|
|Total monthly debts / Gross monthly income (x 100)||TDS|
|$ 1,485 / $ 4,500.00 (x 100)||= 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 tool to estimate your monthly mortgage payments. Or, simply use the chart below:
4.75% interest rate, amortized for 25 years = 5.67, and a $90,000 mortgage
= (5.67 x 90,000 / 1,000)
|%||10 Years||15 Years||20 Years||25 Years|
Note: This article is compiled with information obtained from CMHC. The information contained in this article is believed to be accurate, but not warranted to be so.