So you’ve heard about it and now you want to know what is mortgage default insurance. This is one requirement placed upon first time home buyers by the Government of Canada. Who is required to pay this?
Persons that are first-time homeowners.
Persons with a downpayment of less than 20%
Banks are allowed under the Bank Act to lend a maximum of 80% of the purchase price of a home. If you have your 20% downpayment there is no need for mortgage default insurance. If you have your 20% downpayment you will qualify for a conventional mortgage. When you don’t have the required deposit amount you can be granted a high ratio mortgage. In such a case, the insurance company will compensate the mortgage lender in the event that you default on your mortgage.
How to Qualify for Mortgage Default Insurance
If you think you may be eligible for mortgage default insurance, first contact your bank. Find out what are the usual qualifications for a mortgage and find out what the underwriting standards are for your mortgage insurer. Not sure where to find this type of insurance? Contact the Office of the Superintendent of Financial Institutions. They can give you a list of their approved insurers offering this type of insurance. Each insurer from this list will have their own criteria of evaluation so you need to check out if you meet their qualifications as well as if the property you are interested in meets their qualifications for this insurance as well.
Benefits of Mortgage Default Insurance
The primary purpose of mortgage default insurance is to protect the lender. The insurance protects them in the event that you default on your mortgage payment. But it also benefits you. With this insurance, you now are able to purchase your home a lot sooner and with a downpayment as low as 5%.
Important points to note about mortgage default insurance;
- This does not provide protection to you or your interest in the property purchased in the event that you default, you will lose all.
- You don’t have coverage for a mortgage payment under this insurance policy. If you are unable to make your payment or if you pass away your mortgage goes into default.
- This insurance is only available for homes that are priced at less than $1,000,000.
- Your premium will be calculated as a percentage of the borrowed amount.
- You can have a lower premium if your down payment is bigger.
- Payments can be made over a period of 25 years and these can be combined with your monthly mortgage payments.