Guides for Canadian real estate investors
CMHC Rules for Rental Properties in Canada
CMHC mortgage insurance is one of the most misunderstood aspects of Canadian real estate investing. The short version is that it generally does not apply to investment properties, which has significant implications for how much cash you need to buy a rental property. Here is what investors need to know.
What CMHC mortgage insurance is
CMHC, which stands for Canada Mortgage and Housing Corporation, is a federal Crown corporation that provides mortgage loan insurance to lenders. When a borrower puts down less than 20% on a home purchase, the lender requires mortgage insurance to protect against default. CMHC is the largest provider of this insurance in Canada, alongside private insurers Sagen and Canada Guaranty.
Mortgage insurance is sometimes confused with mortgage life insurance or home insurance. It is none of those things. It is insurance that the lender purchases against the risk of borrower default, and the cost is passed to the borrower as a premium added to the mortgage balance. The borrower pays for insurance that protects the lender.
The key benefit to borrowers is that mortgage insurance allows them to purchase a home with as little as 5% down on a primary residence. Without insurance, lenders require a minimum of 20% down. This is why first-time homebuyers can access homes with a small down payment while investment property buyers cannot.
The core rule for rental property investors
CMHC mortgage insurance is not available for non-owner-occupied investment properties. If you are purchasing a property you do not plan to live in, you must put down at least 20% of the purchase price. There is no insured option and no exception to this rule for investment properties.
This is one of the most important facts for anyone entering rental property investing in Canada. It means:
Not available for investors
Properties you will not occupy as your primary residence
Properties purchased solely to rent out
Second homes used as investment properties
Any non-owner-occupied residential property
May be available with conditions
Properties of 1 to 4 units where you occupy one unit as your primary residence
Subject to specific down payment rules based on number of units
Subject to rental income treatment rules for qualification
Confirm current eligibility with CMHC or your broker
The practical consequence is straightforward. To buy a $600,000 rental property in Canada, you need a minimum of $120,000 in cash as a down payment. There is no way around this for a property you will not occupy.
The owner-occupied rental exception
There is one situation where CMHC insurance may be available on a property that generates rental income: when you purchase a small residential property of one to four units and occupy one unit as your principal residence. This is sometimes called a duplex, triplex or fourplex strategy.
In this scenario, you are the owner-occupant of the property, and the rental units generate income that helps you qualify for the mortgage. CMHC treats the property as an owner-occupied home rather than an investment property for insurance purposes.
| Property type | Owner-occupied requirement | Minimum down payment | CMHC available |
|---|---|---|---|
| 1-unit (single family home) | Must be primary residence | 5% on first $500,000, 10% above | Yes |
| 2-unit (duplex) | Must occupy one unit | 5% on first $500,000, 10% above | Yes |
| 3-unit (triplex) | Must occupy one unit | 10% | Yes |
| 4-unit (fourplex) | Must occupy one unit | 10% | Yes |
| 5+ units | N/A | Conventional financing | No |
| Non-owner-occupied (any size) | Not applicable | 20% minimum | No |
The owner-occupied multi-unit strategy is a legitimate and commonly used entry point for new investors. Buying a duplex, living in one unit and renting the other reduces your personal housing cost while building equity and generating rental income. The rental income from the other unit can often be counted toward your mortgage qualification.
If you use this strategy and later move out of the property, your occupancy status changes and your mortgage and insurance terms may be affected. Discuss the implications with your mortgage broker and lender before making any changes to your occupancy.
CMHC insurance premium rates
When CMHC insurance does apply, the premium is calculated as a percentage of the mortgage amount and is added to the total mortgage balance. You then pay interest on the premium over the life of the mortgage. The premium is not an upfront cash cost at closing, though provincial premium taxes may apply in some provinces and are paid at closing.
| Down payment percentage | CMHC premium (% of mortgage) |
|---|---|
| 5% to 9.99% | 4.00% |
| 10% to 14.99% | 3.10% |
| 15% to 19.99% | 2.80% |
| 20% or more | No insurance required |
As an investor with a mandatory 20% down payment, you will not pay a CMHC premium. This is actually a benefit of the investment property rules: you avoid adding a premium to your mortgage balance. The tradeoff is the larger upfront cash requirement.
For owner-occupied multi-unit buyers using the exception above, the premium applies to the insured portion of the mortgage and adds to the total borrowing cost. Factor this into your analysis when comparing a duplex strategy with a conventional investment property purchase.
How the 20% rule affects your investment analysis
The 20% down payment requirement has several practical effects on how you analyze and plan a rental property purchase.
Your cash requirement is larger than many buyers expect
On a $700,000 property, 20% down is $140,000 before closing costs. Add land transfer tax, legal fees, inspection and title insurance and the total cash required to close is often $155,000 to $175,000 depending on the province. Plan for the full acquisition cost, not just the down payment percentage.
Your mortgage balance is smaller, which helps cash flow
Because you are putting more down, your mortgage balance is lower than it would be for an equivalent owner-occupied purchase with 5% down. This reduces your monthly mortgage payment and improves cash flow compared to a scenario where you could have borrowed more. Run both scenarios in the calculator to see the difference.
The stress test still applies
Even with 20% down and no CMHC insurance required, the federal mortgage stress test applies to all investment property mortgages from federally regulated lenders. You must qualify at the higher of your actual rate plus 2% or the OSFI minimum qualifying rate. The stress test reduces the maximum mortgage you can access regardless of your down payment size. See the mortgage stress test guide for a full explanation.
Rental income can help you qualify
Most lenders will count a portion of the expected rental income from the investment property toward your gross income for qualification purposes. The percentage varies by lender and typically ranges from 50 to 80% of gross expected rent. A mortgage broker who works with investors will know which lenders apply the most favorable rental income treatment for your situation.
Common questions about CMHC and rental properties
Model the numbers on your rental property
Now that you understand the financing rules, use the calculator to estimate cash flow, cap rate, after-tax return and multi-year projections with your actual down payment.
This guide is for general informational and educational purposes only and does not constitute financial, mortgage or legal advice. CMHC rules, eligibility requirements, premium rates and qualifying criteria can change. Always confirm current requirements directly with CMHC at cmhc-schl.gc.ca or with a licensed mortgage broker before making financing decisions.