Five Benefits of a Mortgage Loan Insurance

The mortgage loan insurance is a type paid to a trustee or lender for different securities required to take out a house loan. This insurance is required to protect the lender in case the mortgagor is unable to pay the loan back. Thus, one benefit of the mortgage loan insurance is that losses are offset for lenders if they are unable to recover the costs after selling mortgaged properties.

In Canada, this insurance is required if a homeowner makes a down payment, which is less than twenty percent of the property’s purchase price. Under the Canadian Bank Act, banks and other financial institutions, which are federally regulated, cannot provide mortgages without insurance if the amount is over eighty percent of the home’s value. While it protects lenders in case of default, it also makes it possible for mortgagors to buy a home with a minimum down payment. The latter can be as low as 5 percent, and the interest rate is not much higher than that of mortgages with a 20 percent down payment.

A third benefit is that mortgagors can choose the type of home, with the down payment still being less than 20 percent. Those who want to buy a two-unit dwelling or a single-family one would make a down payment of 5 percent. The down payment for three- and four-unit dwellings is set at 10 percent. In most cases, the down payment should come from the borrower’s resources. An exception is a gift of a down payment for one- to four-unit dwellings, offered by an immediate relative. Additional down payment sources may also be permitted, for example, borrowed funds or lender incentives. Applicants should check availability and qualifying criteria with their lenders.

A fourth benefit is the possibility to get a better interest rate. It gives lenders more flexibility the same way a larger down payment does. Moreover, there are various products to choose from as to achieve your home ownership dream. If you are renting but cannot afford to make a larger down payment, having mortgage insurance allows you to buy a home with carrying costs similar to the rent you are paying.

There are some barriers to financing if you want to borrow the traditional way. Many homebuyers who do not qualify for a mortgage loan benefit from having mortgage loan insurance. Among them are persons who work on commission and the self-employed. Even persons with a very good credit score may not meet the lending criteria of financial institutions. This is where mortgage insurance comes to help applicants qualify for financing.

If you have good credit, you can even buy a vacation property, and you will find options allowing borrowers to do this. You get even more benefits if you insure your mortgage with the Canada Mortgage and Housing Corporation or another insurance provider. This applies to refinancing for energy-saving renovations and purchasing an energy-efficient home. Borrowers who opt for this get a ten percent refund on their insurance premium. Moreover, they benefit from an extended amortization period, and there is no surcharge. How does this work? It is simple. The borrower makes energy-saving renovations on the advice of an energy advisor. Then, there is a second assessment as to evaluate the effectiveness of the improvements made. After the assessment, the borrower is eligible for a refund of 10 percent only if the rating shows an increase of five points, with the minimum rating being forty points. Those who make renovations can apply for a refund online or fill out an application form and send it to the Canada Mortgage and Housing Corporation.

Finally, there is a list of approved lenders, which work with the CMHC. Among them are the Bank of Montreal, All Nations Trust Co, the Bank of Nova Scotia, BC Housing Management Commission, and many others. The type of lending varies depending on the lender.