Back in the mid 1950’s, if you did not have 20% of the homes purchase price to put toward a down payment you would not qualify for a mortgage as lenders would only finance up to 80% of the home’s value.
Still known today as conventional mortgage financing – requiring a 20% down payment put home ownership out of reach for many Canadians as escalating home prices made it more and more difficult to save enough for the down payment.
The real estate and mortgage lending landscape changed dramatically in 1954 when the Canadian Government introduced mortgage default insurance.
With mortgage default insurance in place to protect mortgage lenders, financial institutions started offering potential homebuyers mortgage loans of up to 100% of the home’s value. Today the maximum loan amount is 95%; although there are many products that lenders offer that can increase the potential loan amount.
High ratio mortgage is the term used to describe mortgage applications where a down payment of less than 20% is available. With high ratio mortgages, mortgage default insurance is mandatory in Canada.
An important note on mortgage default insurance is that while the insurance is paid for by the homebuyer, its purpose is to indemnify the lender in the event the borrower defaults on the mortgage payments.
Currently there are three mortgage default insurance providers in Canada – Canadian Mortgage Housing Corporation (CMHC), Genworth and Canada Guaranty Mortgage Insurance Company. Their premiums are generally very similar but do vary slightly on the guidelines pertaining to the different mortgage programs they participate in, therefore one insurer may be more suitable than another in certain situations.
What is the actual cost of insuring your mortgage?
Mortgage loan insurance can be expensive. A one-time premium is paid by the borrower on the total amount of the mortgage, not just on the portion exceeding 80% of the purchase price. Depending on the size of the down payment, the employment status and the overall risk profile of the applicant or property, the insurance premiums can range from .50% to 7.00% of the total mortgage. The premium can be paid in one lump sum at the time of purchase, or it can be added to your mortgage and included in your monthly mortgage payment.
Click here for a fee table provided by CMHC
Make sure to check out my blog in the coming weeks for additional articles on Title Insurance, Home Insurance, and Mortgage Life / Disability / Critical illness Insurance.
For more information on mortgage default insurance or to set up a confidential appointment to review your mortgage options please feel free to call or email.
“Helping you find a mortgage...and peace of mind”
Domenic Mirabelli
Mortgage Intelligence
416.303.4480
No comments:
Post a Comment