When is Mortgage Loan Insurance Required?
Mortgage Loan Insurance is a Canadian program, implemented as a requirement associated with mortgage loans when the down payment is less than 20% of the total cost of the home.
It is issued by the one of three Mortgage Insurance providers, Canadian Mortgage & Housing Corporation (CMHC), Genworth or Canada Guarantee and is required by all lenders in Canada where a down payment of less than 20% is made by a homebuyer. It enables buyers to have a smaller down payment, while still receiving the same great mortgage rates as buyers with 20% down or more.
Those who require mortgage insurance by paying a lesser down payment, have to pay into an insurance policy. The amount of the premium is based on a percentage of the financed portion of the home’s purchase. This premium is passed on to the home buyer. The premium can be paid in a one-time full payment. It can also be paid over the 25 year span or life of your mortgage.
There are many benefits to Mortgage Loan Insurance, such as:
- The ability to purchase a home by putting less than 20% down (5% is the minimum down payment). Which helps you get into a home faster, especially in high-cost urban areas like the GTA.
- Mortgage Loan Insurance can apply to a variety of housing types.
- Allows buyers to purchase a second home with less than 20% down payment.
It is important to note that Mortgage Loan Insurance is not Mortgage Life Insurance. This is a separate policy protecting your estate against and unpaid mortgage in case of death.
When you meet with your mortgage broker for pre-approval they will tell you what premium you can afford to pay based off calculations. The calculations are made with information you will provide. Depending on how much your mortgage loan finances your total purchase, premiums generally range from 0.5%-3.15%.
You may qualify for Mortgage Loan Insurance if you meet the following criteria:
- You are a Canadian homebuyer.
- Your down payment is less than 20% of the purchase price
- You have the required minimum down payment to purchase a home. This may be as low as 5% and some lenders still offer 0% down mortgages. Typically you are required to finance your own down payment; however, speak to your mortgage advisor if your circumstances are different.
- Monthly housing costs are 39% or less than total monthly household income.
- Liabilities (including any debt) is no more than 44% of your gross household income.
- Other requirements may apply upon lender conditions.
There are many financing options when it comes to Mortgage Loan Insurance. Contact mortgages.ca about your options during the pre-approval process. They will give you with a better understanding on what your options are when it comes to Mortgage Loan Insurance.