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Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20 per cent of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at five per cent — with interest rates comparable to those with a 20 per cent down payment.
The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is five per cent. When the purchase price is more than $500,000, the minimum down payment is five per cent for the first $500,000 and 10 per cent for the remaining portion. Mortgage loan insurance is available only for properties with a purchase price of as-improved or renovated value less than $1 million.
To obtain mortgage loan insurance — available from CMHC or a private company — lenders pay an insurance premium. Usually, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
Mortgage loan insurance should not be confused with mortgage life insurance that guarantees your remaining mortgage at the time of your death will not be a burden to your estate.
For CMHC-insured mortgage loans, the home must be located in Canada and the maximum purchase price or as-improved property value must be below $1 million.
CMHC’s mortgage loan insurance can be applied to many different types of housing and is available everywhere in Canada.
A range of products and financing options are available through your lender. For example, borrowers can move CMHC mortgage loan insurance from an existing home to a new home and may be able to save money by reducing or eliminating the premium on the financing of the new home.
Newcomers to Canada with permanent resident status are eligible under all CMHC mortgage loan insurance products, regardless of how long they have been in Canada. As needed, CMHC will consider sources other than a traditional credit history.
Borrowers may be eligible for a 10 per cent mortgage insurance premium refund from CMHC for the purchase of an energy-efficient home or to make energy-efficient improvements to an existing home.
As products available from individual lenders may vary and are subject to the lender’s eligibility rules, it is important for you to discuss your financial situation with your mortgage professional.
To learn more about mortgage loan insurance, visit www.cmhc.ca for a full list of requirements, calculators and worksheets, along with information on all aspects of planning and managing your mortgage.
Christina Haddad is the regional vice-president, Ontario at Canada Mortgage and Housing Corp. E-mail firstname.lastname@example.org.