Mortgage Insurance

When you’re ready to purchase your first home, you will need to gather enough money for a down payment, which is a percentage of your future home’s purchase price. Depending on what you can put together, you may be able to afford a 20% down payment. In that case you will not need to insure your mortgage. However, if your financial situation only allows for a down payment that is less than 20% of the home’s purchase price, you will need mortgage insurance.

What is mortgage insurance?

Mortgage loan insurance (sometimes referred to as “mortgage default insurance”) exists to protect lenders against mortgage default. Additionally, mortgage insurance helps borrowers purchase homes with a minimum down payment of 5-10%. When you purchase a home with a lower down payment, lenders need to be sure that they are covered should you default on your loan or your property forecloses.

Mortgage insurance is for residential mortgages that have between 1-4 units. Bigger buildings with storefronts and 5+ units are considered commercial properties and different insurances and rules apply.

The CHMC has made some important changes to mortgage insurance in the recent years, and it is important that you know what these changes are.

What are the CMHC’s changes?

In 2015, the Canadian Mortgage and Housing Corporation (CMHC) amended its homeowner mortgage loan insurance premiums for buyers that provide a down payment of less than 10%. What this means is when you make a lower down payment, your premiums will go up by about 15%. This premium increase translates to about $5 extra on your monthly mortgage payments.

How does mortgage insurance differ from other types of insurances involved with my home?

You may have heard about homeowner/property insurance and mortgage life insurance. These two safeguards are very different from mortgage insurance.

  • Homeowner/property insurance is bought to protect your home and possessions from theft and damage
  • Mortgage life insurance is in place to repay any outstanding balance on your mortgage should you suffer from long-term disability or pass away

How is mortgage loan insurance calculated?

When you meet with your mortgage broker to look for a mortgage, s/he will help find the perfect package for your needs. When you’re ready to apply for your mortgage, the lender will tell you the exact cost of the premiums. The insurance itself is calculated as a percentage of the loan you’re getting, as well as the size of your down payment. The higher the percentage of the home’s total price and the value that you borrow means you will pay a higher premium. Furthermore, premiums in Ontario, Manitoba and Quebec are subject to provincial sales tax. However, this shouldn’t deter you from wanting to purchase your dream home. The first step in owning your dream home is a simple one: Apply! From there, your broker will be able to guide you as to which steps to take next in order to make it happen.

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Your home is your most valuable asset. It is probably the single largest investment you will make in your lifetime. Your home is more than a place to rest your head and raise a family. Your home contains equity. It is a treasured resource and in some cases, can even be used as an ATM (aka cash back mortgages and HELOCs – don’t worry we’ll get there).

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