Understanding Homeowner Mortgage Insurance.

Mortgage loan insurance

In most cases, the hardest part of purchasing a home, especially for first time home buyers, is saving enough money for the down payment. If you are unable to save a down payment of 25% it's unlikely that you would ever be able to purchase a home, certainly not using conventional mortgage lenders.

In comes mortgage loan insurance..

Mortgage loan insurance was developed to address the problem home buyers have with saving enough for a down payment while addressing the concerns Canadian mortgage lenders expressed with the increased potential of payment default. By developing mortgage loan insurance, home buyers and mortgage lenders now have an alternative.

Using approved Canadian lenders, mortgage loan insurance now affords home buyers the ability to purchase a home with as little as 5% down while protecting mortgage lenders against payment default. The CMHC Flex Down plan allows some to borrow their down payment.

What's the impact on a home buyers down payment? Purchase a $100,000 home without mortgage loan insurance and you'll need a down payment of $25,000. With mortgage loan insurance you can borrow up to 95% and need as little as a down payment of 5% or $5,000.

Don't be mislead about mortgage loan insurance though... In the event that you default on your payments, mortgage loan insurance does nothing for you, it's there to protect the lender against loss. The benefit you get from the insurance is that it affords the lender the ability to mortgage your home purchase up to 95% of the purchase price or appraised value, which ever is lower.

CMHC - Canada Mortgage and Housing

In Canada, mortgage loan insurance is typically provided by either CMHC (Canada Mortgage and Housing), a Government sponsored program or Genworth , a publically trade company.

Properties that qualify for mortgage loan insurance include the following:

Type of dwelling	Required down payment*
Single family dwelling	5%
Two unit dwelling	7.5%
Three or four unit dwelling	10%

* down payments via gifts from immediate relatives are acceptable as a down payment. Additionally, eligible borrowers can also borrow their down payment.

What are the qualifications required for mortgage loan insurance?

The home must be located in Canada.
You must have a down payment of at least 5% of the purchase price of the property. (Qualified buyers can borrow your down payment).
Your home related expenses cannot exceed 32% of your gross household income, GDS (gross debt service ratio) or 40% of your total debt payments, know as TDS (Total debt service ratio).
You must also demonstrate the ability to pay the closing cost equivalent to at least 1.5% of the purchase price.
For new buildings, builders are required to be registered with new home warranty provider and have enrolled the building in the same program. Owner builders are exempt.
Minimum mortgage terms is 6 months.
Maximum Amortization period is 25 years.

The costs of mortgage loan insurance is determined as follows:


	Loan to Value Ratio	Premium on Total Loan
Purchase	up to an including 65%	0.50%
	up to an including 75%	0.65%
	up to an including 80%	1.00%
	up to an including 85%	1.75%
	up to an including 90%	2.00%
	up to an including 95%
	- Traditional down payment	2.75%
	- Flex Down	2.90%

*Portability and Refinance	up to an including 65%	0.50%
	up to an including 75%	2.25%
	up to an including 80%	2.75%
	up to an including 85%	3.50%
	up to an including 90%	4.25%

Premium Surcharges	Progress Advance	.50%
	Standard Variable Mortgage(VRMs)	.25%
	Blended Amortization for refinance and Portability	.50%
	Secured Line of Credit
	Non-Amortizing Repayment Option 5 yrs (5/20) 10 yrs (10/15)	.25% .50%

* Rates updated 06/06

For portability and refinance, the premium is the lesser of the premium on the increase to the loan amount or, the purchase premium on the total loan. In the case of Portability, a premium credit may be available under certain conditions to reduce the purchase premium.

Premiums in Ontario and Quebec are subject to provincial sale tax which cannot be added to the mortgage amount.

All rates are subject to change.

Note: Other terms and conditions may apply.

Mortgage loan insurance premiums can be paid in a lump sum or be added to your mortgage and included in your monthly mortgage payment. As part of this insurance premium, you will also be subject to a application fee.

Questions? Talk to one of our Canada mortgage specialists today.

Suggested resources:

Mortgage Glossary – Don’t understand some of the terms used in these articles? Our mortgage glossary provides simple definitions.

Canadian Mortgage Calculator - Calculate mortgage payments, amortization schedules, interest costs and more. The more you play with it, the more you’ll see what it can do.

Calculator and definitions - Calculate your own TDS (total debt service ratio) and GDS (gross debt service ratio).

Canada mortgage loan insurance

Understanding Homeowner Mortgage Insurance.