Choosing the right interest rate is important, as is choosing the right mortgage structure. Many Canadian buyers compare CMHC insured v/s Bank Backed Mortgages when making an informed decision.

What is a CMHC Insured Mortgage in Canada?

A CMHC (Canada Mortgage and Housing Corporation) insured mortgage is required when your down payment is less than 20% of the purchase price.

This mortgage is insured against default. The insurance protects the lender in case of payment default by the borrower. The insurance premium is added to the mortgage balance.

Lenders Prefer CMHC-Insured Mortgage

Many lenders in Canada prefer the bank-backed mortgage because the loan is insured, and they face lower risk. This means easier qualification for first-time buyers and slightly lower interest rates compared to uninsured mortgages.

Adding insurance premiums increases the total borrowing cost over time.

What is a Bank-Backed Mortgage?

A bank-backed mortgage, also known as a conventional mortgage, is typically used when you make a 20% or higher down payment.

There is no mortgage insurance premium. The upfront equity in the property is higher. In some cases, the interest rates are higher as the lender carries the risk.

With more equity in the home, the borrower reduces overall interest costs and may have greater refinancing flexibility in future.

Differences between CMHC and Bank Mortgages

• Down Payment: The down payment for the CMHC mortgage is a minimum 5%, and for the bank-backed mortgage is a minimum 20%. 
• Mortgage Insurance Cost: The CMHC-insured mandatory premium is added to the loan. In a back-backed mortgage, no premium is required.
• Interest Rates: The CMHC-insured mortgage has slightly lower interest rates as the lender risk is reduced. The bank-backed mortgages have marginally higher rates but no insurance costs.
• Overall Cost: The CMHC-insured loans offer lower rates, but the insurance premium increases the total repayment. Bank-backed loans avoid insurance costs but require higher savings upfront. 
• Financial Flexibility: Insured mortgages have a stricter approval process. Conventional loans provide better refinancing and equity access options in many cases.
 

CMHC v/s Conventional Mortgage – Which is Better?

CMHC Mortgage is better –

• If your savings are limited
• You want to enter the market sooner
• You qualify under insured mortgage limits.

Bank-Backed Mortgage is better-

• If you can afford 20% or more down
• You want to avoid insurance premiums
• You prefer stronger equity and long-term savings.

The mortgage structure you must choose must be based on total cost analysis and not just on monthly payments. Work with a licensed and experienced mortgage consultant to help you make an informed choice.

The specialist will compare insurance premiums and rate differences, long-term interest costs, prepayment privileges and penalty structures.

Analyzing these differences, the mortgage broker will ensure you select the loan that aligns with your budget, risk tolerance and long-term financial goals.

Both CMHC-insured and bank-backed mortgages serve important purposes in the housing market of Canada. If you are a first-time buyer with limited savings, insurance may open the door to homeownership.

If you have substantial savings, a conventional mortgage could be an ideal choice, offering better long-term financial benefits.