Insured vs. Uninsured
Mortgage insurance is required if you’re buying a home and are borrowing more than 80% of the home’s value. This insurance protects the lender against borrower default, and enables them to give you mortgage financing for the purchase of a home with as little as no money down. Mortgage default insurance can make a big difference in how quickly your mortgage loan is approved.
Mortgage default insurance is a win-win solution for both home buyers and lenders. Lenders rely on mortgage default insurance to protect themselves from financial losses in case a loan is not repaid. Because lenders have this protection, they are willing to offer loans with as little as no money down.
Downpayment < 20%
If you have less than a 20% down payment, you’ll pay a mortgage default insurance premium which can be capitalized into your mortgage. This premium will be based on the percentage of the mortgage as well as the amortization you choose. There are currently 3 mortgage insurers in Canada – CMHC (Canada Mortgage and Housing Corporation) , Genworth Financial, and Canada Guaranty. Premium amounts can be found by going directly to the insurers website.
- CMHC: http://www.cmhc-schl.gc.ca/
- Genworth: http://www.genworth.ca
- Canada Guaranty: http://www.canadaguaranty.ca
Please refer to the chart below for the insurance premium rates:
|LTV Ratio||Single Advance|
|Up to 65%||0.50%|
|65.01% – 75%||0.65%|
|75.01% – 80%||1.00%|
|80.01% – 85%||1.75%|
|85.01% – 90%||2.00%|
|90.01% – 95%||2.75%|
*a .20% premium surcharge will be applied to the above premium rates for every 5 years of amortization beyond the traditional 25-year mortgage amortization period. Premium is non-refundable.
The above chart states the mortgage insurance premiums for a mortgage that is amortized over 25 years or less. The maximum amortization for a mortgage is currently 30 years. In the case where a mortgage is amortized beyond 25 years, an additional premium is charged. The general rule of thumb is for each additional 5 years added to the amortization, the premium is increased by 0.20%. For example, if your downpayment is 5% and you wish to have your mortgage amortized over 30 years, your mortgage insurance premium will be 2.95%.
Downpayment > 20%
When your downpayment on the property exceeds 20%, you are getting an uninsured mortgage (also known as a conventional mortgage). With a conventional mortgage, no mortgage insurance premiums apply, but there are exceptions. Refering to the chart above the chart shows premiums even if you have more than 20% downpayment. Remember that this is default insurance and is based entirely on risk. For the majority of situations once you have 20% downpayment you are not required to get mortgage insurance but this is at the lenders discretion based on risk. So if you have bad credit but still put down 20% because of your past history with bad credit the lender may still require you to have mortgage insurance and if you are amortizing the loan over 25 years the lender would be asking for at least a 1% premium. Also, lenders can usually be a little more flexible during the mortgage approval process since mortgage insurance approval may no longer necessary.