Mortgage Insurance? Life Insurance? I'm confused...
It's so exciting when you save up that 5% Down Payment and you are finally able to afford a house.
The wind is quickly let out of the Sail though as soon as you see the Insurance cost required to get your mortgage....it can be as high as 5.85% for some folks!
Here in the Great White North, we have 3 Mortgage Insurance providers. They are CMHC, Sagen (formerly G.E. or Genworth Financial), and Canada Guaranty.
They are nearly identicle with a few wavering product differences, but all in all they do the same thing...they protect your lenders money.
But what is it? Do you need it? How do I pay for it? Is it negotiable?
What is it? Mortgage Insurance is also referred to as "Mortgage Default Insurance". It does 2 things, first it helps Canadians buy a home sooner and with a lower down payment...as low as 5% for qualified borrowers. Mortgage Insurance is NOT Life Insurance. Life Insurance is what you need in case you Die. That's an entirely different animal - but it's optional and is discussed with clients case by case as it pertains to them. Secondly, Mortgage Default Insurance protects the lender in the event you default on your mortgage and the lender has to take back your home...the insurance is there to make sure the lender recovers their funds.
Do you need it? If you have a down payment of less than 20%...then you need it. If you have a down payment of 20% or larger...you may not need it...even if you have 25% to put down...you still may need it.
How do I pay for it? Good News - the lender adds the insurance cost to your mortgage and they pay it directly to the Mortgage Insurer.
Is it negotiable? No. Mortgage Insurance is non-negotiable. It is set up on a sliding scale based on the size of your down payment and/or the product you require.
To learn more about Mortgage Insurance, we encourage you to visit CMHC's link below:
It's important to note that mortgages with Mortgage Insurance generally receive the LOWEST MORTGAGE RATES from lenders as the lender is not exposed to any risk. As such - they can offer better interest rates. The opposite is true then for non-insured (conventional) mortgages...in these case, as explained above, the lender will offset their risk by simply bumping up the mortgage rate a bit.
The LTV (Loan to Value) falls in the Up to and including 95% category...that means you are borrowing 95% of the amount needed to buy your house.
Just a quick note - there is no mortgage insurance available for Refinances. Instead you'll see lenders offer "conventional" rate products that are priced marginally higher than the insured counter part. The marginal rate price is the lenders way of offsetting their overall risk.
These figures are different if you are self employed. For more information on that stuff...click over to our Self Employed Section.
Fun fact about Energy Efficient Homes...you can get up to 10% of your Mortgage Insurance Premium back in your pocket if your home qualifies!!
Another Fun fact...our Mortgage Calculator already takes in to account your potential Mortgage Insurance Premium! Hurry - go check it out. We're pretty proud of it!
