Thursday, 11 June 2015

Mortgage Insurance - What You Need To Know About CMHC, Genworth, and Canada Guaranty

Mortgage Insurance: 101

For the sake of clarity, let's start by clarifying the meaning of the term "mortgage insurance". When we talk about this, there are generally 2 things that come to mind:

Life and/or Disability insurance, or Mortgage Default insurance. 

Today we will be focusing on the latter of the two.

What is it?


Mortgage default insurance is a policy which protects your mortgage lender in the event that you default on your payments. One concept which is critical to understanding this product is to remember that it is not designed or intended to be used by you, the buyer of property. It is there to pay your lender if you default on your payment obligations, plain and simple. In mortgage transactions, there is always risk to the lenders and statistically this risk increases drastically when loan-to-value ratios exceed 80%.

Enter: CMHC. This government-owned corporation offers several mortgage default insurance products that allow prospective homebuyers to obtain a mortgage with little to no money as a down payment. Since CMHC coming on the scene, there are now also private companies such as Genworth and Canada Guaranty which offer similar products and unique variations depending on the property, the borrower, or any other variables which can affect your mortgage application.

Why do I need it?


In Canada, it is a requirement that any mortgage which has a loan-to-value of greater than 80%(Or less than 20% down payment, if you prefer) MUST be insured on the lender's behalf. This extra security allows lenders to feel more comfortable taking on the risk that comes along with high-ratio mortgages and it allows the real estate market(not to mention the economy) more security as well.



The mortgage insurers also act as a secondary review of all high-ratio mortgage applications. Having this third party go over the property and mortgage details in these transactions is important to ensure that the deals are being under-written carefully. This way there is even greater peace-of-mind for the buyers, the lenders, and the insurers that the property will hold it's value for some time to come.

How much does it cost?

The premium for mortgage default insurance (as of June 2015) varies between 1.25-3.85% of your total mortgage amount. It increase according to your loan-to-value ratio and the source of your down payment. The higher the LTV and therefore the riskier the mortgage, the more you will be required to pay. Once calculated, the premium is then added to your mortgage and amortized over the life of your loan as part of your monthly payments(Which means you won't have to pay this fee up-front).

To try an excellent insurance premium calculator, visit CMHC HERE

As the lenders and insurers get more selective about the products they offer and the mortgages they are willing to approve, it is becoming increasingly important to have a licensed mortgage broker on your side to decipher the complexities around the different options available.


For the most up-to-date information on your Home Purchase, Mortgage Refinance, or Mortgage Renewal in Kamloops, BC please visit us at www.ryanwsmith.ca or

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