Mortgage Insurance: What It Is and Why You May Need It

Mortgage Broker Red Deer - Mortgage Insurance

Mortgage Insurance: What It Is and Why You May Need It

March 9, 2018
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Are you looking for a Red Deer Mortgage Broker? Well, look no further because the Regional Mortgage Group has the services you need. Before you continue on with the mortgage process, it is important to determine if you need mortgage default insurance, or not.

 

What is mortgage default insurance

Mortgage default insurance, also known as mortgage insurance or the Canadian Mortgage and Housing Corporation (CMHC) insurance, is a policy that protects the lenders or investors from any losses in the event of a foreclosure.  There are 3 mortgage default insurance companies in Canada – CMHC, Genworth and Canada Guarantee.  Mortgage default insurance is not to be confused with mortgage life insurance. Default insurance protects the lender against any potential losses in the event of a foreclosure. If there is a shortfall after the sale of the home, the lender would have the ability to make a claim to be reimbursed.

This insurance virtually eliminates any potential risk to the lender providing the mortgage. If the lender knows you have mortgage default insurance, they will be more likely to offer you more favourable terms. You will have access to the lowest rates available than if your mortgage were not insured.  As well, the buyer would not usually have to pay for any appraisals if there is even an appraisal required at all. Most properties are automatically approved for valuation.  However, if there is one required the insurer pays for it in most cases. One important advantage of having an insured mortgage is that when it comes time to renew your mortgage at the end of your term, you can usually transfer your mortgage to a different lender with no charge and with the best rates on the market. It should be noted that you would be required to go through the application process again in order to transfer your mortgage to a new lender. You would also not be permitted to change the mortgage amount or amortization. In this case, different rates and legal fees would likely apply.

Insurance premiums are simply added to your mortgage amount so there is no need to pay out of pocket.

 

Why you need it

In Canada, mortgage default insurance is mandatory if the down payment on your home is between 5% and 19.99%. It may be possible to still qualify for a Red Deer mortgage if you have a down payment below 5%. There may be options to borrow the down payment under CMHC’s Flex down product for strong applications.

If your house is priced between $500,000-$999,9999, you would be required to pay 5% down payment amount towards the first $500,000 and 10% towards the balance. In addition, to qualify for the insurance the maximum amortization is 25 years.  The maximum purchase amount for default insurance mortgages must be under $1,000,000.

 

Call Today!

As your local mortgage broker Red Deer, we can provide you with all the information you need in order to make the most informed decisions. To get started, please contact the Regional Mortgage Group at 403-392-5808 or tania@mortgagesbytania.ca.

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