What is the Canada Mortgage and Housing Corporation?

The Canada Mortgage and Housing Corporation is Canada’s national housing agency, the Federal Crown Corporation responsible for administering Canada’s National Housing Act. The CMHC, as it’s commonly known, was founded in 1946, just after World War II, in order to help get returning veterans into homes that they might not otherwise have been able to afford. Cool story, but what’s the CMHC have to do with you? A lot, actually.

The CMHC’s primary job is getting Canadians into affordable housing, and in that role, it’s most well known for supplying mortgage loan insurance to approved borrowers, allowing those who can’t come up with a standard 20% down payment access to a home with a considerably lower down payment—as little as 5% for a home under $500,000. (CMHC provides mortgages for homes valued up to $1,000,000.) The CMHC insurance guarantees that should any insured mortgage holder default, they’ll pick up the tab for any losses incurred by the lender. The net effect of this is plentiful mortgages available to lots of low and middle income Canadians that boast affordable interest rates, since there’s virtually no risk to banks for making the loans.

Of course, you’ve heard about Free Lunch, and how, like its poker buddies the Abominable Snowman and Bigfoot, it doesn’t really exist. Interest rates may be low, but CMHC insurance will cost you a lot of money over the life of a typical mortgage, and the lower percentage of the purchase price you put down, the more it will cost you, typically adding anywhere from .5% to 2.9% of the mortgage amount on top of whatever interest rate your bank charges. There have been numerous reports indicating that even for those not on the hook for CMHC insurance, renting could be a better financial decision than buying, so no knock on homeownership, but you should think very carefully about financing more than 80% of a home’s value.