Mortgage Default Insurance
For most people the hardest part of buying a home, especially the first one, is saving for thedown payment. Many people will not have 20% of the purchase price to put down, but with mortgage loan insurance you can put as little as 5% down.
Mortgage loan insurance protects the lender from default and most Canadian lending institutions are required by law to have it. If the borrower defaults (fails to pay) on the mortgage, the lender is reimbursed by the insurer. The cost for this coverage is in the form of an insurance premium which is often added to the mortgage, or you can choose to pay in a single lump sum at the time of closing. Canada Mortgage and Housing Corporation (CMHC), Genworth Financial and Canada Guarantee are three major providers of this type of insurance in Canada.
CMHC’s standard mortgage loan insurance premiums are as follows:
|
Financing Required |
Premium % of Loan Amount |
|
80.01 to 85% |
2.80% |
|
85.01 – 90% |
3.10% |
|
Between 90.01 and 95% (Borrowed Down payment) |
4.00% |
|
*Premiums in Ontario are subject to provincial sales tax and premiums in Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount. |
|
|
Insurance premiums are calculated based on the mortgage amount. |
|
Down Payment Requirements: Homes over $500,000
This applies to people who have a down payment of less than 20% and therefore require mortgage default insurance. The minimum down payment is 10% for the portion of a house price that exceeds $500,000.
To break this down, the minimum down payment for a $600,000 home would be $35,000. That’s 5% ($30,000) on the first $500,000 and 10% ($5,000) on the next $100,000 in price. The blended down payment in this case would be 5.8%.