CMHC mortgage insurance and the buy vs rent decision

The rules in brief

The minimum down payment is 5% of the first $500,000 of the price plus 10% of the portion from $500,000 to under $1.5 million. On homes at $1.5 million or more the minimum is 20%. Insured mortgages are capped at purchase prices under $1.5 million (rule effective December 15, 2024).

The premium is a percentage of the loan: 4.00% for a down payment of 5% to 9.99%, 3.10% for 10% to 14.99% and 2.80% for 15% to 19.99%. It rises by 0.20 percentage points if the amortization exceeds 25 years. The premium is usually added to the mortgage. Provincial sales tax on the premium may apply in some provinces, so check the current rule.

What the premium costs on a $500,000 home

Suppose a $500,000 purchase in Alberta, a 4.5% rate, a 25-year amortization, rent of $2,300 a month and a ten-year hold, with the other calculator defaults. The premium is added to the loan. The engine uses the same mortgage rate in every row so that only the down payment changes. Real lenders may price insured and uninsured mortgages differently.

How the premium shifts the buy vs rent result

The premium is financed, so it adds interest for as long as the mortgage lasts and it is part of the balance you owe when you sell. It builds no equity. In the example, the extra $19,000 at 5% down is a cost on the loan that a 20% buyer does not carry.

At the same time, a small down payment leaves more cash for the renter to invest in the comparison, and it allows the buyer to enter the market sooner. The net effect depends on rates, rent and price growth.

The cliff at 20%

Premium rates step down in bands, and the premium disappears entirely at 20% down. In the example, moving from 15% to 20% down removes an $11,900 premium and shortens the break-even from about 4.6 years to about 3.4 years. Moving from 10% to 15% saves $2,050 of premium. The step at 20% is the biggest in the table.

This does not mean waiting for 20% is always right. The time spent saving is time spent renting, and prices and rents can move meanwhile. Use the down payment vs invest tool to compare buying now with a smaller down payment against waiting.

Amortization adds to the premium

Insured amortization is normally 25 years, and 30 years is available to first-time buyers and buyers of newly built homes (rule effective December 15, 2024; confirm eligibility). A 30-year amortization adds 0.20 percentage points to the premium. On the same $500,000 home the premiums become $19,950 at 5% down, $14,850 at 10% and $12,750 at 15%.

The longer amortization lowers the payment, to $2,495.61, $2,343.85 and $2,207.20 respectively, but it increases the interest paid over time. In the engine the ten-year result changes only slightly, to $72,007, $77,464 and $78,117. A lower payment is a budgeting benefit; it is not a cheaper mortgage.

Other points to check

The 20% threshold applies to the purchase price, and the minimum down payment is higher on more expensive homes. On a $700,000 home the minimum is $45,000, which is 6.4%, so the premium rate band is 4.00%. Use the mortgage payment tool with your own price.

Also remember that the stress test applies to insured mortgages, and that closing costs must be paid in cash on top of the down payment. A household with the minimum down payment and no other savings has little cushion.