What does it mean if a loan requires a CMHC insurance premium?

The requirement for CMHC (Canada Mortgage and Housing Corporation) insurance premium is directly tied to the down payment made by the borrower. When a borrower is making a down payment that is less than 20% of the property's purchase price, lenders typically require mortgage insurance to protect themselves against the risk of default. This insurance makes it less risky for lenders to provide loans in scenarios where the borrower has less equity in the property. The CMHC insurance premium covers this risk, allowing borrowers with lower down payments to access mortgage financing.

This is essential in the Canadian mortgage landscape because it makes homeownership more accessible for individuals who may not have sufficient savings to meet the 20% down payment threshold. Thus, if a loan requires CMHC insurance, it indicates that the borrower is opting for a lower down payment option, underscoring the important link between down payments and the necessity for insurance.