You’ve decided to buy a home now that you have saved up enough money to put 5% down (or less than 20%). You know you’ll be responsible for a mortgage, however, are you are aware that if your down payment is also less than 20% you’ll also be responsible for qualifying for a conventional mortgage and for mortgage loan insurance?
The first step is understanding: What Is Mortgage Loan Insurance
Mortgage Loan Insurance is basically a guarantee to the lender that you are good for the money, meaning you will not default on your mortgage. If a situation arises were you are not able to pay your mortgage, the insurance ensures that the lender won’t have to cover the balance of the purchase price. The federal government requires the lenders to ensure your mortgage if the home being purchased is made with less than a 20% downpayment. At present there are three companies in Canada that offer mortgage insurance: Canada Mortgage and Housing Corporation (CMHC) owned by the Canadian government and the only insurer that covers 100 percent, Genworth Financial and Canada Guaranty both of which cover only 90%.
The second step is understanding: How Much Will It Cost Me?
The cost of insurance really varied depending on how little or how much of a down payment you choose to include in your home purchase. For example CMHC highlights the following premiums:
In plain English, is that for example if you purchase a condo at $250,000, you will expect to pay a premium of:
- $8,550 with 5% down
- $5,400 with 10% down
- $3,825 with 15% down
That basically sums up with Mortgage Loan Insurance is and how it affects you and your mortgage. Any questions, please feel free to get in touch (587-400-SOLD (7653)) or send a message my way.
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