The Canadian Mortgage and Housing Corporation (CMHC) is a Crown corporation that helps Canadian buy houses even if they don’t have much savings. They do other stuff too, like research about the real estate market in Canada, but their their mortgage loan insurance is what this institution is mainly known for.
Here’s how it works. Buyers who qualify for CMHC insurance can purchase a house with as little money as 5% of its price. To do so, they just have to pay CMHC’s insurance premium (a fancy word for fees) for default protection. You can either choose to pay the CMHC fees up front or borrow a little bit more on top of the price of your house to do so.
If you have over 20% for a down payment, you can avoid the CMHC fees altogether. That’s a good thing for you, because guess what? CMHC insurance does not protect you in any way. It protects the mortgage issuer, aka your bank, in case you don’t make your payments.
Here’s what CMHC does. If you lose your job, get hit by a bus or get addicted to online poker (and can’t pay back the money you borrowed to buy your house), the Canadian Mortgage and Housing Corporation will refund your bank for any loss it incurs after selling your house to someone else. Then, the CMHC will go after you to get back the money they gave to your bank.
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