What is Mortgage Loan Insurance?

What is mortgage insurance?  If you don't qualify for a conventional mortgage which is 25% down and 75% financing on the property then you are required to obtain high ration financing. in Canada, financial institutions use two primary insurers for their high ratio mortgages, CMHC & Genworth.  Please contact us if you have any questions regarding a new mortgage, refinancing or even a debt consolidation.  Below are the guidlines courtesy of CMHC.

High ration Mortgage Loan Insurance is an insurance that covers your lender’s risks associated with financial loss that can occur when a homeowner defaults on their mortgage loan and in turn increases your access to mortgage financing and at the most competitive interest rates possible.

As with any insurance, there are insurance premiums to be paid. The amount of the premium varies and can range between 0.65% and 2.75% depending upon how much of the purchase price/home value is financed with a mortgage loan.

Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

What are the General Requirements to Qualify for Homeowner Mortgage Loan Insurance?

• The home is located in Canada.
• You have a down payment of at least 5% of the purchase price of the dwelling, depending on the dwelling type.
  • Single-family and two-unit dwellings (5% minimum down payment)
  • Three- or four-unit dwellings (10% minimum down payment)
• Normally, the minimum down payment comes from your own resources. However, a gift of a down payment from an immediate relative is acceptable for dwellings of 1 to 4 units. For eligible borrowers, additional sources of down payment, such as lender incentives and borrowed funds, are also permitted through CMHC’s Flex Down product. Check with your lender for qualifying criteria and availability.
• Your lender is a CMHC Approved Lender.
• Your total monthly housing costs, including Principal, Interest, property Taxes, Heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, shouldn’t represent more than 32% of your gross household income (Gross Debt Service (GDS) ratio). Use the GDS form to calculate how much you can afford in housing costs to be eligible.
• Your total debt load shouldn’t be more than 40% of your gross household income. The Total Debt Service (TDS) ratio is your P.I.T.H. + 50% of condominium fees (if applicable) + payments on all other debt / gross annual household income. Add up your costs and determine your Total Debt Service ratio using the TDS form.
• You also need to think about closing costs (for example, legal and land transfer fees) equivalent to 1.5% to 4% of the purchase price. Many first-time buyers are surprised by these costs. That is why, when qualifying for CMHC’s Mortgage Loan Insurance, our Home Purchase Cost Estimate worksheet form will help you calculate your total homebuying costs.
  
  Closing costs include but are not limited to one-time items such as lawyer fees, GST and PST as applicable, land transfer tax if applicable, adjustments, etc., to allow you to complete the house purchase.
• Other requirements may apply and are subject to change. For details, please contact MyMortgageBC.Com.

How Much Does Mortgage Loan Insurance Cost?

To obtain CMHC or Genworth Mortgage Loan Insurance, lenders pay an insurance premium. Typically, your lender will pass these costs on to you. Your lender will give you the exact price when you apply for a mortgage.

The CMHC and Genwoth Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.

Remember: without mortgage insurance you may avoid the insurance premium but you’ll typically pay much higher interest rates and additional administrative fees. At the end of the day, for the vast majority of borrowers, the cost of CMHC Mortgage Loan Insurance is more than fully offset by the savings achieved.