Mortgage Insurance – the Basics

What is Mortgage Insurance?  Why do I need it?

Mortgage Insurance is required for people who put less than 20% down on the purchase of their new house.  The minimum down payment required when using mortgage insurance is 5%.    This means on a $129,950 house the minimum downpayment required is $6,497.50.

What’s the benefit of mortgage insurance?

Mortgage Insurance allows you to get our of renting, and to start building equity, before you save a 20% down payment.  Without mortgage insurance, on the $129,950 house, you would need to save $25,990.  In today’s day, of high rents and stagnant wages, saving an extra $19,492.50 is difficult for most people to accomplish.

How do I apply for mortgage insurance?

 There are three companies that provide mortgage insurance in Canada:

1)   Canada Mortgage and Housing Corporation, CMHC

2)   Genworth

3)   Canada Guaranty Mortgage Insurance Company

When you apply for your mortgage, either through a bank or a mortgage broker, they will submit the application to any of the mortgage loan insurance providers.  You do not need to visit anyone else, but there will be more paperwork to sign.

How much does mortgage insurance cost?

There are fees associated with mortgage insurance, typically the fees are a percentage of the mortgage loan amount and the fees decrease as the downpayment increases.  For example, the fees from CMHC are as follows:

Loan-to-ValuePremium on Total Loan
Up to and including 65%0.50%
Up to and including 75%0.65%
Up to and including 80%1.00%
Up to and including 85%1.75%
Up to and including 90%2.00%
Up to and including 95%2.75%
90.01% to 95% 2.90%

This means, if you buy a house for $129,950 and put 10% down, you would have a loan-to-value of 90% and standard premiums for 2.00%.  Your actual dollar cost would be as follows:

Total purchase price129,950
Less down payment(12,995)
Total Mortgage Amount116,955
Mortgage Insurance fee of 2%2,339.10
Total loan with Mortgage Insurance Fees119,294.10

You would pay $2,339.10 in mortgage insurance fees and then have a total mortgage of $119,294.10.

What’s the benefit of buying an Advantage Home?

The benefit of buying an Advantage Home, in this situation, is a 10% savings on the mortgage loan insurance.  CMHC offers this rebate for energy efficient homes, which an Advantage Home qualifies for.  This means that by buying an Advantage Home instead of a comparable older home you would save 10% of your mortgage premium, or $233.91.  That is $233.91 in your pocket to use how you see fit, a family movie, a weekend away, however you would like to spend it.

Contact us now for more information on how to purchase an Advantage Home.

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