Are you worried that you might not own a home in Canada because of your inadequate down payment? Then this information should bring a smile on your face — mortgage insurance in Canada can help you own your dream home sooner than you think without having to pay more rates than other buyers.
First things first, though.
What is mortgage insurance all about?
Mortgage insurance is crucial because when you have less than 20% as down payment, the lender considers you riskier than normal. Unlike mortgage life insurance, mortgage insurance is designed to protect the lender in case of a default. Of course, the lender can sell the property if the borrower is unable to pay the mortgage, but then there are instances of the property being of lower value. To increase the likelihood of no-default, check our mortgage payment calculator.
Mortgage Insurance in Canada
The major provider of mortgage insurance in Canada is The Canadian Mortgage and Housing Corp. also referred to as CMHC. You have probably heard about this organization in relation to home loans for Second World War veterans. CHMC has been around since 1944, when the Canadian parliament established it for the purpose of offering affordable mortgages and housing to veterans returning from the Second World War. What many Canadians might not know is that the organization also offers mortgage insurance to home buyers who might not have the financial muscle of buying a home.
There are other insurers too in the names of Canada Guaranty Mortgage Insurance and Genworth Financial. These ones are private.
Genworth Financial is a subsidiary of Genworth MI Canada Inc. and the biggest private institution of this kind. For close to 20 years, the insurer has helped ease the burden of owning homes for many Canadians.
Canada Guaranty, also called Canada Guaranty Mortgage Insurance Company, is a bit younger, having only emerged in 2010. Some of the cases where the company has and continues to come to the aid of borrowers include:
- Home renovation
- Buying investment property
- First-time homebuyers
- Self-employed Canadians
- Buying the next home
It is important to note that both the banks and the insurers are very independent when it comes to evaluation and approval. This means that your bank may approve your mortgage, but the mortgage insurer may decline your application.
The Cost of Insurance
The cost of the insurance depends on several factors including the amount borrowed, amortization period and the amount you put down. Remember that the insurance also contains fees that are usually inversely proportional to the amount of down payment.
What I have noted is that all the three mortgage lenders tend to have the same premiums. You can pay between 0.6% and 3.85%, depending on how much you put down. As noted earlier, the only big difference between the three lenders is the evaluation and approval process.
There are many hindrances to owning a home in Canada, but a down payment of less than 20% should not be one of them. You can run to CMHC, Canada Guaranty Mortgage Insurance or Genworth Financial. For more information on how these institutions can help you, contact a reliable mortgage insurance broker today or go to the insurance company.