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Originally Posted by MoneyGuy
Here's an idea to keep CMHC insurance costs down. It doesn't work for everyone, but it may help you. First, this is what CMHC insurance is all about.
Unless you have a a sufficient down payment, you’ll have to pay CMHC insurance fees. This is insurance for the lender.
CMHC fees are calculated on a sliding scale based on the down payment and amortization period. On a 5% down purchase CMHC fees are 2.75% of the mortgage amount on an amortization period of 25 years or less. For a 30-year amortization add 20 basis points and for a 35-year amortization add another 20 basis points. So for a new home buyer where qualifying is tight they typically will pay 3.15% of the mortgage amount which is added on to the mortgage total.
For 10% down the fee is 2% with the same additions for an amortization over 25 years. For a 15% down mortgage the fee is 1.75% with the same additions of an amortization over 25 years. If you put 20% down you do not require CMHC fees or typically the lender will pick them up on your behalf. Your goal should be to have a 20% down payment, if possible. This isn't feasible for a lot first-time homebuyers, of course, so then fees will apply.
On a typical home purchase of $350,000 with 5% down and an amortization period of 35 years, the fees are $10,473. This fee protects the lender, not the buyer. A strong consideration should be given to avoiding the fee.
Here is an idea that may help to reduce or avoid the CMHC fees entirely. Whether this works for a particular individual will depend largely on personal situation, including incomes, debts and other savings.
Take out a line of credit and borrow cash on it. Put the cash into your savings account and don't touch it for 90 days. Once it's there for 90 days it's considered by lenders to be your savings and can be used to boost your down payment. The best way to see if this works for you is to consult a mortgage broker. I suppose first-time buyers could also hit up parents for a loan or gift.
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You were going so well up to the end, I WA going to thank your post. But there's a fatal flaw there, every lender I deal with will have a condition that the down payment is not borrowed. A gift from your parents is fine, a loan is not.