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Mortgage Insurance: Who Is The Beneficiary?

You’ve finally found your dream home. It’s got the perfect floor plan, has a big backyard, and is located in just the right neighbourhood. You decide to buy it. Congratulations! As you make your way through the purchasing process, you’ll hear about mortgage insurance. What is it? And do you need it? ​
What Is Mortgage Insurance?
Mortgage insurance covers the lender in the event that you default on your mortgage. Essentially, it is designed to lower the risk to the lender of making a loan to you. This way you can get lower overall interest rates on your mortgage, even with a low down payment.  

Do I Need Mortgage Insurance?
Mortgage default insurance, commonly known as CMHC insurance, is required for all home purchases in Canada in which the down payment is less than 20% (5% is the minimum down payment). 
In order to acquire mortgage insurance, you have to meet the following requirements: 

  • The maximum amortization for insured mortgages is 25 years.
  • Only a 5% down payment is required for homes costing less than $500,000; between $500,000 and $999,999 the minimum down payment is 5% of the first $500,000, and then 10% on the amount above $500,000, up to $999,999.
  • Mortgage insurance is not available for properties valued at $1,000,000 and higher; a 20% down payment is required for these purchases. 

Does Mortgage Insurance Protect Me?
While mortgage insurance is designed to protect lenders, consumers receive some ancillary effects from the financial instrument. First, it allows you to purchase a home with a much smaller down payment. Also, because it makes lending you money less risky, you might qualify for a loan that you might not otherwise would have been able to get (although it does increase the total cost of your loan). At the same time, without mortgage insurance mortgage rates would be higher. This is because the risk of default would be higher, and lenders would have to cover themselves somehow. 

Where Do I Get Mortgage Insurance?
There are three mortgage insurance providers in Canada: the Canada Mortgage and Housing corporation (CMHC), Genworth Financial, and Canada Guaranty. 

Does any of this sound confusing?
It doesn’t have to. Contact Higgins Insurance today and our team of insurance experts will be on hand to answer any questions you might have. We specialize in all kinds of insurance for your home, vehicle, and family, and we’ll be happy to help guide you through the process so that you can concentrate on decorating your new home – not insuring it. 

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