Having a house might seem very common, but due to the higher cost of buying it and continuously soaring prices, not everyone can experience it. Calling a house your “home” and personally owning it is a different feeling. Owning a house requires a lot of planning, and if you can plan well, you can achieve this dream. For this purpose, the Canada Mortgage and Housing Corporation (CMHC) is there to support your aspiration to buy a house!
A Little History of CMHC
CMHC or the Canada Mortgage and Housing Corporation work as the national housing agency of Canada for affordable housing to everyone. CMHC provides activities related to insurance, and it is so omnipresent that house insurance in Canada is known as CMHC insurance. Out of 3, 1 Canadian gets an insurance policy from CMHC while buying a house. Along with that, one of the services by this institute is research. They publish regular trends and research on the Canadian real estate market to various businesses, government organizations, and customers.
The history of CMHC is interesting. After World War II, there were numerous demobilized soldiers in Europe. And their reentry in Canada worried the government as too many people can create issues and a sense of emergency due to lack of accommodation.
To solve this issue, the Canadian government started the Central Mortgage and Housing Corporation on January 1, 1946. Later it was renamed Canada Mortgage and Housing Corporation in 1979. The aim was to provide housing programs to war veterans.
When it started, the main functions of CMHC were to look after the National Housing Act as well as Home Improvement Loans Guarantee Act. It was established with a capital of $25 million, along with a reserve of $5 mullion.
At present, CMHC is liable for the National Housing Act and has to answer the Parliament via Ministers of Families, Children, and Social Development. It is situated in Ottawa. And even though it is a full government organization, it operates as a private institute because its president has to report to an independent board of directors. The Government of Canada appoints the president as well as the directors.
Functions of Canada Mortgage and Housing Corporation
The below are the three main functions of CMHC to make a difference in the life of Canadians.
1. The CMHC Mortgage Insurance
When you pay less than 20 percent in the down payment, you have to buy mortgage insurance. Under this program, CMHC provides protection to lenders of mortgages, like banks in case of any default. As a result, people can have mortgages approved with lower interest rates. This makes it smoother and accessible for people to buy a home, as otherwise, the higher interest rate or higher down payment could steal the dream. Even if you can pay only 5 percent as a down payment, you still have the ability to buy a house.
In 2018, more than 317,000 individuals got the benefit from this scheme and archives their dream of buying a home. CMHC also gives rebates to households for having better energy efficiency. The rebate is known as “Green Rebate”. If you want to build or want to renovate your house in energy-saving manner, you can get a 15 percent reimbursement.
2. First Time Home Buyer Incentive
As the name suggests, under the First Time Home Buyer Incentive, CMHC helps first-time home buyers by reducing their monthly mortgage installments. This program works as a shared equity mortgage. You can borrow 5 percent of 10 percent in this incentive on the purchase price of your house. It works like a second mortgage but without any principal amount needed. Thus, it benefits first-time home buyers and reduces the overall installments. One of the best things here is that you don’t pay any interest on the amount you have borrowed from CMHC.
The amount of borrowed money depends upon certain situations as listed below.
- Existing House: 5 percent
- New Constructions: 5 to 10 percent
- New / Existing Mobile or Manufactured House: 5 percent
- Annual qualifying income has to be lower than $120,000.
- You or your in-law partner has to be the first-time homebuyer.
- The total amount you want to borrow can not exceed 4 times the qualified income.
- Canadian citizen and a permanent or non-permanent resident having legal rights to employment in Canada.
- The rest of the funding has to be done through traditional methods like savings, Registered Retirement Savings Plan (RRSP), etc.
- The first mortgage you have got has to exceed 80 percent of the house purchase value.
Though, one of the main requirements is also that you have to pay back the amount you borrow within 25 years or while selling the house; whatever takes place first.
The calculation of the amount to be payback is based on the recent market value. I.e. if you buy a house at $300,000 and take $15,000 at 5 percent. After 20 years, you sell it for $400,000. So, now you would not pay back $15,000, but $20,000. The same thing would apply if the house value reduces, you would pay less money back.
3. National Housing Strategy (NHS)
CMHC through the National Housing Strategy has a strong goal of reducing homelessness by a good 50 percent by catering to the needs of 530,000 households between 2021-2025. It has the aspiration that everyone in Canada should have a home by 2030. As per the NHS, they would “recognize that women and children fleeing domestic violence, seniors, Indigenous peoples, people with disabilities, members of racialized groups, those dealing with mental health and addiction issues, veterans and young adults all experience unique challenges in accessing housing that meets their needs”.
For the same, they are communicating with provinces and the three territories on how to build and secure the funds. One such multilateral Housing Partnership Framework is – the Canada Community Housing Initiative. Under this, they would consider giving subsidized houses to families having a low income.
Here, RHI would look after acquiring land, building modular homes, and converting existing houses into affordable ones. Provinces, territories, municipalities, government bodies, non-profit insinuates, etc. can avail of this program.
Canada Mortgage and Housing Corporation have penetrated so deep in Canadian households that when it comes to affordable housing, its name comes up without any second thoughts. I hope this article has helped you understand various aspects of CMHC. If you want to know more about it, you can visit its website here!