What’s an insured mortgage?
An insured mortgage is a mortgage that’s protected by mortgage default insurance. The insurance protects the lender (not you, the consumer) against losses in the event you stop making your mortgage payments and default on your loan.
Who provides mortgage insurance?
Canada Mortgage & Housing Corporation, Canada Guaranty and Genworth are the three mortgage insurers in Canada.
Why does mortgage insurance exist?
Mortgage loan insurance enables borrowers to purchase homes with a minimum down payment starting at 5% – with interest rates comparable to those offered with a larger down payment because they are viewed as more secure than loans without insurance.
When is it required?
It’s typically required if the “loan to value” ratio is greater than 80% (i.e. if the lender is lending you more than 80% of the property’s value).
The easiest way to know if you’ll need it is by asking yourself the down payment question: Are you able to put 20% down or more? If the answer to this question is “yes”, mortgage insurance likely isn’t required. If the answer is “no”, it’s likely required.
Here’s a simple example to illustrate how down payment and the loan to value ratio are connected:
Let’s pretend you want to purchase a property worth $300,000 and you need a mortgage for $270,000 because you have $30,000 of your own funds to put toward the down payment. This means the lender is loaning you 90% of the property’s value (270,000 / 300,000 = 90%). The other 10% is coming from your $30,000 down payment.
Because you’re putting less than 20% down, your mortgage is considered “high ratio” (over 80% LTV). This means your lender is required to have mortgage insurance, and they’ll be passing the premiums onto you.
How much, exactly? Premiums tend to range between 0.6% and 4.5% of your total mortgage loan amount. Check out CMHC’s website here for more info: https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/mortgage-loan-insurance-and-premiums
You can also refer to their mortgage calculator for more precise estimations.
How do I pay it?
The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments. Payments begin on the date your mortgage funds are advanced.
Are there any exceptions?
Yes. It is not available for properties with a purchase price or as-is improved/renovated value above $1,000,000.
I have more questions – who can I talk to?
If you have more questions about how mortgage insurance works, a member of our team is happy to explain. Feel free to give us a call at 902-835-6420.
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