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downpaymentCanadian Mortgage Insurer Basics

Whether you are first time home buyer or buying your fifth home then you may be required to get mortgage insurance.

Mortgage insurance is required for any home buyer in Vancouver if they have less than 20% of the value of the purchase price of the home which they are using towards a down payment. If you have an amount equivalent to 20% or greater as a down payment, then you don’t have to worry about having to apply for mortgage insurance.

Many people in Vancouver can only afford between 5% (which is the very minimal amount you will be required to have for a down payment) or have less than 20% to use towards their down payment. If that includes you then you will have to get mortgage insurance.

What is Mortgage Insurance?

Mortgage insurance is used to protect lenders from a person defaulting on their mortgage loan. A lender has to buy mortgage insurance for any mortgage where the down payment being placed by the purchaser is less than 20% of the purchase price. The cost of this insurance premium is inevitably passed back to the purchaser.

Mortgage insurance should not be confused with mortgage life insurance because mortgage insurance is not a life insurance policy. They are two completely different things. A mortgage life insurance policy is generally bought to insure the amount of the outstanding mortgage balance so it will not be a burden to the survivors.

How Much Does Mortgage Insurance Cost?

The amount of premium you will have to pay will be in addition to the amount you will be required to pay for your mortgage payment. The premium varies and is dependent on the amount of both the purchase price and the amount of the down payment you are putting down towards the home. It is reflected as a percentage amount that the mortgage insurer will calculate.

The more money that you borrow, and the smaller the down payment – the higher the percentage in the premium you will be accessed.

You may also qualify for a percentage premium refund as high as 10% or a longer amortization period if the home being purchased qualifies as an energy efficient home.

Do You Have to Get Mortgage Insurance?

No, you do not necessarily have to get mortgage insurance but there is a significant disadvantage in not having mortgage insurance. In the first place, many lenders will not consider you if you do have it. Secondly, you will have to may have to pay significantly more in interest rates and administrative fees because you are a higher risk to lend money. Although mortgage insurance costs you more, you are most likely going to save significantly more by having it than not having it.

How Is Mortgage Insurance Payable?

You have the option of paying the mortgage insurance amount as either a lump sum up front or it could be included into your monthly mortgage payments.

How Many Mortgage Insurers Are There?

In Canada there are 3 primary mortgage insurers. The 2 best known mortgage insurers are CMHC (Canada Mortgage and Housing Corporation) and Genworth Financial Mortgage Insurance. A third new player was added to this list in 2010 and they are called Canada Guarantee Mortgage Insurance.

You will have to discuss which insurer is used or suggested by your lender or mortgage broker as one may be slightly more suitable over another depending on your individual circumstances.

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