There's been a lot of talk about Canada Mortgage and Housing
Corporation (CMHC) and its mortgage insurance portfolio lately. With that kind
of news peg, we thought it was time to clarify some myths and questions about
this time of mortgage insurance:
- CMHC isn't the only provider of mortgage insurance in Canada. There are also two private companies - Genworth and Canada Mortgage Guaranty - that offer the same product.
- The type of insurance that these companies offer is technically called "mortgage default insurance"? and actually protects the lender - not the homeowner - if the homeowner fails to pay their mortgage. They then pass that cost of that insurance onto the homeowner. The homeowner has the option of either paying in one lump sum or over the life of the mortgage.
- Lenders typically acquire mortgage default insurance when a homeowner has a down payment that is less than 20% of the value of the home, although they might also get it for other reasons - like if your credit rating isn't quite where they would like it.
- The premium is calculated as a percentage of your mortgage loan and the rate is based on the size of your down payment.
- The lender typically chooses the mortgage default insurance provider, but you can definitely put a word in for the provider that you prefer. For more information on mortgage default insurance - or anything else mortgage-related - feel free to give me a call!
Although a mortgage insurance makes it possible for you to purchase a house with as little as a 3-5% down payment, it no longer benefits you once you have the house. The insurance is basically an additional cost to the borrower for the increased risk held by the lender. It is important to track down your payments and request cancellation of the mortgage insurance premiums when the loan-to-value ratio hits 80%.
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