When financing a Canadian rental property, one of the first decisions you face is whether to use a CMHC-insured mortgage or a conventional mortgage. The choice affects your down payment requirement, your monthly carrying costs, your lender options, and ultimately how quickly you can build a portfolio.
Most investors default to conventional financing without fully understanding what CMHC insurance unlocks, or they assume CMHC is only for first-time homebuyers. Neither assumption is entirely correct.
This guide breaks down how each route works, what it costs, and which one makes sense depending on your situation.
What Is a CMHC-Insured Mortgage?
Canada Mortgage and Housing Corporation (CMHC) provides mortgage default insurance to lenders when a borrower puts down less than 20% of the purchase price. The insurance protects the lender, not you, but it allows lenders to offer financing at lower down payments and typically lower interest rates than they would otherwise accept.
Two other insurers also provide this coverage in Canada: Sagen (formerly Genworth) and Canada Guaranty. All three operate under the same federal rules and charge the same premium schedule, so investors often use “CMHC insurance” as a shorthand for any high-ratio mortgage insurance product.
For rental properties specifically, insured financing is available on properties up to four units, provided the borrower occupies one of the units. A straight investment property with no owner-occupancy does not qualify for CMHC insurance under most programs.
What Is a Conventional Mortgage?
A conventional mortgage requires a minimum 20% down payment. No insurance premium is charged because the lender is taking on less risk at that loan-to-value ratio. For pure investment properties (non-owner-occupied), conventional financing is the only federally permitted path.
In practice, most lenders require 20 to 25% down for a non-owner-occupied rental property. Some lenders apply stricter requirements based on the number of units or the borrower's existing portfolio size.
The Premium: What CMHC Insurance Actually Costs
The insurance premium is calculated as a percentage of the mortgage amount and added directly to your loan balance. You pay it off over the life of the mortgage alongside principal and interest. You can also pay it upfront in cash, though most borrowers fold it into the mortgage.
| Down Payment | LTV Ratio | Premium (% of mortgage) |
|---|---|---|
| 5% | 95% | 4.00% |
| 10% | 90% | 3.10% |
| 15% | 85% | 2.80% |
| 20% or more | 80% or less | 0% (conventional) |
On a $600,000 property with 10% down ($60,000), the insured mortgage is $540,000. The 3.10% premium adds $16,740 to your mortgage balance, bringing it to $556,740. That premium is also subject to provincial sales tax in some provinces at closing.
The trade-off is that you preserved $60,000 of capital that can go toward a second property, renovations, or reserves rather than sitting as equity in the first one.
Interest Rate Differences
Insured mortgages typically carry lower interest rates than conventional mortgages because the insurance eliminates default risk for the lender. The rate difference is usually 10 to 30 basis points, though it varies by lender and market conditions.
On a large mortgage, even 20 basis points is material. On a $500,000 mortgage, a 0.20% rate difference amounts to roughly $1,000 per year in interest savings. Over a five-year term, that is $5,000, which partially offsets the premium cost.
For conventional mortgages on investment properties specifically, rates are often higher again relative to owner-occupied conventional mortgages. Lenders price in additional risk when the borrower is not living in the property.
Qualification Differences
Stress Test
Both insured and conventional mortgages are subject to the federal mortgage stress test. You must qualify at the higher of your contract rate plus 2%, or the Bank of Canada benchmark rate. The stress test applies regardless of down payment size. See our full mortgage stress test guide for rental property investors for a detailed walkthrough.
Rental Income Treatment
Under insured financing for owner-occupied multi-unit properties, lenders typically allow a portion of the rental income from the non-owner-occupied units to offset the mortgage payment. The exact percentage varies by lender but commonly ranges from 50% to 80% of gross rental income.
For conventional investment mortgages, the treatment of rental income in the debt-service calculation is handled differently again and varies significantly by lender. Some lenders use a rental offset approach; others use a full income inclusion. This is worth clarifying directly with your broker before you start shopping properties.
Property Type Restrictions
CMHC insurance for rental properties is limited to one-to-four-unit properties where the borrower occupies one unit. Five-plus-unit buildings, commercial-residential mixed use, and pure investment properties without owner-occupancy all fall outside the standard insured program and require conventional or CMHC multi-unit commercial financing (a different product entirely).
Side-by-Side Comparison
| Factor | CMHC-Insured | Conventional |
|---|---|---|
| Minimum down payment | 5% (owner-occupied, under $500K) | 20% (investment); 20-25% typical |
| Insurance premium | 2.80% to 4.00% added to mortgage | None |
| Interest rate | Typically 10-30 bps lower | Typically 10-30 bps higher |
| Owner-occupancy required | Yes (for 1-4 unit rental) | No |
| Max property price | $1.5M (as of Dec 2024) | No federal cap |
| Amortization | Up to 30 years (as of Aug 2024) | Up to 30 years typical |
| Stress test applies | Yes | Yes |
| Lender availability | A-lenders only | A-lenders, B-lenders, private |
When CMHC-Insured Financing Makes Sense
The house-hacking strategy is the clearest use case: you buy a duplex, triplex, or fourplex, live in one unit, and rent the others. The rental income covers part or all of your mortgage, your down payment is as low as 5%, and you qualify for insured rates.
This approach lets you enter the market with significantly less capital than a straight investment purchase would require. If you have $80,000 saved and a target property costs $600,000, conventional financing is out of reach (you need $120,000 minimum). Insured financing is not.
The premium is a real cost, but it is a financing cost, not a sunk cost in the traditional sense. You are paying for leverage, and leverage on an appreciating, cash-flowing asset compounds favorably over time. The key question is whether the return on that preserved capital exceeds the cost of the premium.
When Conventional Financing Makes Sense
If you have 20% or more available and are buying a property you will not occupy, conventional is your only federally compliant option regardless of preference.
Conventional financing also gives you access to B-lenders and private lenders, which matters if your income is self-employment, variable, or structured in a way that A-lenders underwrite conservatively. The tradeoff is a higher rate and stricter debt-service ratios at most B-lenders.
For investors building a portfolio over time, conventional mortgages on separate investment properties are the standard path once the house-hacking phase is complete. CMHC insurance requires you to live in the property; at some point, you move on and need a different tool.
How This Affects Your Cash Flow Analysis
The financing structure changes your cash flow model in two ways. First, an insured mortgage carries a higher loan balance (due to the premium) and therefore a higher monthly payment than a conventional mortgage on the same property at the same rate. Second, the lower rate on insured financing partially offsets that higher balance.
The net monthly cash flow impact depends on the specific numbers, but the premium cost is spread over 25 to 30 years of amortization, so the monthly drag is modest. The more significant variable is typically the interest rate spread between insured and conventional products at the time of your purchase.
Running both scenarios through a proper deal analyzer before committing to a financing structure is the right approach. The numbers look different for a $400,000 duplex versus an $800,000 fourplex, and the crossover point between premium cost and rate savings is not the same in every market.
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This post is for informational purposes only and does not constitute financial, legal, mortgage, or tax advice. CMHC premium rates and qualification rules are subject to change. Verify current rates and eligibility directly with a licensed mortgage professional or lender before making any financing decision.