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When is Mortgage Insurance Mandatory for Canadian Homebuyers?
In Canada, mortgage insurance is required on all high-ratio loans, or loans where 80 per cent or more of a property's value is financed through a mortgage.
Mortgage Insurance Protects the Bank / Lender, Not the Borrower
Also referred to as mortgage default insurance or mortgage loan insurance, mortgage insurance assures lenders that they will be covered in the event that a borrower defaults on, or fails to make, their mortgage payments within 90 days of their being due.
The availability of private mortgage insurance has seen the Canadian mortgage insurance industry become a competitive marketplace, offering a host of mortgage insurance products for various types of property purchases and development projects in Canada.
Mortgage insurance means that homeowners can qualify to receive a residential mortgage with as little as five per cent toward a down payment on their prospective property. The guarantee mortgage insurance provides to lenders issuing home or property financing has allowed a wider range of homebuyers to attain their home or property.
Mortgage insurance is also available on commercial mortgages. CMHC's commercial mortgage insurance program allows commercial property purchasers to attain up to 85 per cent financing to build, buy or refinance a multi-unit property.
A combination of good credit and mortgage insurance can usually mean access to the best mortgage rates available. The savings afforded by securing a lower mortgage rate can often more than recover the cost of mortgage insurance premiums.
Mortgage Insurance Premiums
Mortgage insurance premiums are usually calculated based on the percentage of financing used toward a property purchase. This is referred to as the loan-to-value ratio. On homes where 80 per cent or more of the property value will need be financed, the loan is referred to as high-ratio and must be insured. The greater that LTV percentage is (lower downpayment), the greater the mortgage insurance premium will be.
Mortgage insurance premiums are not paid to the insurance company in instalments, rather they are paid up all at once at the beginning of your mortgage. For example, on a $100,000 mortgage, the company insuring the high ratio loan would recieve $1,000 up-front if the premium was one percent. You do not get this money back even if you decide to make a large lump sum payment that improves (lowers) your loan-to-value ratio.
Online mortgage calculators and premium tables can help you to ascertain what the mortgage insurance will equate on your property. You may also utilize these tools to ascertain the best mortgage insurance provider and product to befit to your property purchase.Mortgage Life Insurance
Canadians also have access to insurance that protects the loss of your home in the event of your passing.This type of insurance is called mortgage life insurance. Mortgage life insurance is most commonly attained in the form of Term Life Insurance. This is a policy that will pay your mortgage after your passing, ensuring that your loved ones maintain home ownership.
- The Benefits of Mortgage Insurance
- Canada Guaranty
- The Canada Mortgage and Housing Corporation (CMHC)
- Genworth Financial Canada