Here's what you need to know about mortgage default insurance
Credit to Author: Mary Beth Roberts| Date: Sat, 08 Feb 2020 14:00:05 +0000
If you are considering purchasing a home and do not have 20 per cent of the purchase price for a down payment, then you will be required to pay for mortgage default insurance.
Under the Bank Act, banks may lend up to 80 per cent of the purchase price of a residential property or its appraised value (often called the loan-to-value ratio), whichever is lower, without requiring the mortgage to be insured by a mortgage default insurance company. This type of mortgage is generally referred to as a conventional mortgage.
Mortgage default insurance is required by the Government of Canada when home buyers are putting down less than the 20 per cent payment typically needed to qualify for a conventional mortgage. This type of mortgage is referred to as a high ratio mortgage and the insurance compensates mortgage lenders when there is a mortgage default.
To be eligible for mortgage default insurance, you will first need to meet your bank’s regular lending qualifications, as well as the underwriting standards of your mortgage insurer. The insurance is offered by a number of mortgage insurers, including Canada Mortgage and Housing Corporation (CMHC) and other insurers approved by the Office of the Superintendent of Financial Institutions. Each mortgage insurer has its own criteria for evaluating the borrower and the property and it decides whether or not a mortgage can be insured.
While this insurance is primarily protecting your lender from losing money if you default, it can also benefit you by allowing you to buy a home sooner with a down payment as low as five per cent.
Other things to know about mortgage default insurance:
For further helpful advice, meet with a mortgage specialist.
Kevin Lutz is the RBC Vancouver Regional Sales Manager,
Residential Mortgages.Follow Kevin on Twitter @RBCKevinLutz