For most Canadians, the hardest thing about buying a home—especially for first-time buyers—is coming up with the necessary down payment.
The two basic mortgage options are a conventional mortgage, which requires at least a 20% down payment, and a high ratio mortgage, which is designed for buyers who can’t come up with that 20% down payment.
High ratio mortgages must be insured with what is called mortgage default insurance.
Mortgage life insurance also provides insurance protection for you on the mortgage in the event of death.
Mortgage default insurance is a mandatory guarantee of the mortgage by protecting the lender should the homeowner be unable to continue their payments for some unforeseen reason.
The insurance also provides the lender (your bank) with the flexibility to offer you the same competitive rates available to home buyers with a larger down payment.
The mortgage premiums range from 1.75 to 2.75% of the mortgage amount based on down payment. These mortgage premiums are paid once and are added to the principal balance of the mortgage.
As an example, if you are purchasing a home for $400,000 with a 5% down payment, your mortgage amount would be $380,000. The insurance premium would be based at 2.75%, so $10,450.00 would be added to your mortgage.
In the same instance, if you were to put 15% as a down payment, the premium would be reduced to $7,000.00.
If you were to refinance your mortgage at any point, provided the mortgage with the refinance is still in a high ratio category, there is a requirement to only pay a top up insurance premium on the increased amount.
If you sell a home and purchase another with less than a 20% down payment, you would be required to pay the full premium again. New mortgages that are insured mortgages now have a maximum amortization of 25 years.
When it comes to mortgage default insurance there are currently three main mortgage insurance providers in Canada—Genworth Financial, Canada Guaranty and Canada Mortgage and Housing Corporation a government agency.
Since 1995, the three have helped more than one million Canadians realize the dream of home ownership.
While each has basically the same guidelines, the choice as to which insurer to use is at the discretion of the lender.
These options provided have helped thousands of families stay in their home when faced with financial hardship that put their mortgage at risk.
It is to their benefit to try and work with mortgage holders to find solutions when a financial hardship occurs rather than start a foreclosure proceeding.