February 4, 2016
What Is Mortgage Loan Insurance?
There are many costs to consider and know about when purchasing a home. Especially if it's your first one. One of those costs is Mortgage Loan Insurance. Generally speaking financial institutions offer mortgage lending up to a maximum of 80% of the value of the home or, in other words, with a 20% down payment. If you have less than 20% down payment then a 3rd party insurer has to come in to insure against the possibility of defaulting on paying the mortgage in the future. There are several providers of this insurance but the primary 2 in Canada are CMHC ( Canada Mortgage Housing Corporation) & a company called Genworth.
They both have many different kinds of programs for different situations, clients and properties but generally speaking the less you have to put as a down payment the higher the premium. It's calculated on a percentage of the Purchase Price. For example if you purchased a home for 370K and put the minimum down, which is 5%, then the insurance premium you would have to pay would be around $11,000.00 A fare chuck of change to say the least.
You do have some options, though, with paying this fee. You have the option of paying up front when you complete on the purchase of your property or you can add it to the mortgage proceeds. If you add to the mortgage proceeds, of course, you'll be paying interest on this amount of money as well. The benefit of doing this is that you don't have to come up with the additional money on top of saving for your down payment as well as closing costs which is a struggle for people already, especially considering the costs of home ownership here in the Lower Mainland. Generally speaking you should have about 1.5% of the Purchase Price put aside or available to you in credit facility, like a line of credit, to cover closing costs.
Click on the link below to check out all of CMHC's mortgage loan programs as well as the premiums associated with them: