Mortgage Insurance: Canada Gives You a Choice

The Canadian housing finance system has made it possible for you to buy a property in Canada even if you are not able to save enough for the money down. Better yet, it allows purchasers to purchase a mortgage with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment.

How can this be? This is made possible by buying loan insurance for the amount borrowed on the mortgage. This reduces risk from the mortgage for the broker and enables you to purchase a residence without having to front the entire down payment.

What are the Requirements?

However, not all home buyers will be able to get loan insurance; there are some requirements to qualify.

The property must be in Canada to meet the first requirement. The buyer must make a down payment of at least 5% on single-family and two-unit homes and 10% on three- or four-unit homes. The money down needs to come from your own resources, but it is acceptable for an immediate relative to contribution you the money.

Also, the total monthly housing expenses that include principle, interest, property taxes, heat, the annual site lease in case of household tenure, and 50% of applicable condominium fees should not represent more than 32% of your gross household income.

An additional qualifier for mortgage insurance is your liability load should not be more than 40% of your gross household income.

The amount of closing expenses and fees can also play a part in deciding your eligibility for loan insurance.

Will this cost much?

The lender pays for the loan insurance by paying the insurance premiums. Though the responsibility for paying for the loan insurance is technically on the lender, the broker will pass the cost on to you.

Will the loan insurance be a lot to cover? It depends on who you talk to. There is a direct connection between the amount borrowed and the price of mortgage insurance. The more you borrow, the higher insurance will be. This helps those who save more for a down payment.

They even give you options on how to pay the insurance premium. The premium can be paid in a lump sum or can be added into your loan payments and be paid monthly.

Purchasing loan insurance does not mean you are safe if you default on a loan. The broker is just insured on the borrowed loan. On the bright side, you got to acquire a residence with little money down and a good interest rate.

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