Mortgage insurance, better known as mortgage default insurance is a mandatory requirement for “high ratio” mortgages (mortgages with a down payment under 20%). The purpose of mortgage default insurance is to protect the lender in case of borrower default and foreclosure on the property. Depending on the amount of down payment the borrower puts on their property, high ratio mortgage default insurance premiums can range anywhere between 2.8% and 4% of the purchase price of the home. In Canada, there are 3 mortgage default insurance providers: the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial, and Canada Guaranty. The Canada Mortgage and Housing Corporation is a crowned corporation (owned by the government) while Genworth Financial and Canada Guaranty are both private corporations.
Lenders will always deem mortgages that are insured as less risky and as a result will offer lower interest rates to borrowers. The following criteria needs to met in order to qualify for mortgage default insurance:
- Maximum amortization period allowed on insured mortgages is 25 years
- If the purchase price exceeds $500,000 (and is below $1 million), a higher down payment is required. The minimum down payment in this case changes to 5% on the first $500,000 and 10% on the remaining amount. For example, on a $800,000 house, the down payment would be (5% of $500,000) + (10% of $300,000) = $55,000
- If the value of the home exceeds $1 million then a 20% down payment has to be put down towards the purchase.
How Much Is The Mortgage Insurance Premium?
Mortgage insurance premiums for conventional mortgages (which have less than 80% Loan To Value) are between 0.60% to 2.40% of the property value while high-ratio mortgages (which have over 80% Loan to Value) insurance premiums are between 2.80% to 4.00%. For high ratio purchases, the mortgage insurance premium is automatically added to the mortgage amount and is paid by the borrower over the lifespan of the mortgage. Mortgages that are up for renewal and are under 80% Loan to Value can be insured by the lenders with discounted mortgage rates offered as a result. Speak with an Easy Mortgage Broker today to take advantage of the lowest possible mortgage rates you are eligible for.