Mortgage insurance is legally required in Canada when you have less than 20% of the house value for a downpayment. With mortgage insurance you can go as low as 5% down, but there are insurance fees that you must consider.
Not to be confused with mortgage life insurance – which ensures your mortgage is paid off in the event of your death – mortgage insurance covers the lender in the event of a default on your mortgage. While technically the insurance is done through the lender, virtually all lenders pass this cost off to the borrower. The idea is that this incentivizes lenders to loan out to clients who cannot afford to otherwise meet the 20% downpayment requirement and may be of higher risk to lend to.
The government-backed Canadian Mortgage and Housing Corporation is the defacto insurance provider in the industry. There are other insurers – such as Genworth Financial or Canada Guarentee – but they essentially offer the same products as CMHC.
What is the cost for mortgage insurance? Generally 1-4% of your purchase price. The lower the downpayment you have towards the property, the higher the cost of your insurance. This cost can be added to your mortgage, however, instead of being paid immediately, but the taxes must be paid up front.
While it is almost always better to avoid paying mortgage insurance and meeting the 20% down, sometimes raising the amount of money to meet this requirement can be challenging. This is especially true for first-time homebuyers who typically are just getting started in their careers and families and do not necessarily have enough money to put towards an insurance-free downpayment.
Don’t have 20% down but still need a mortgage? We would love to help. Start a quick and easy application today and we will get you on your way!