Mortgage Insurance in Canada
Canadians are required to insure their mortgages by law, if they have a high-ratio mortgage. For the last four decades a mortgage with less than 25% down payment was considered a high-ratio mortgage. In April 2007 all this changed and the requirements for mortgage insurance were lowered – only mortgages with less than 20% down payment will have to be insured. This can save thousands of dollars in mortgage insurance to Canadian home buyers.

Until recently you can buy a mortgage insurance from only two companies here in Canada - Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Canada. Due to the lack of competition the mortgage insurance fees were ridiculously high, but this also has changed since there are new players entering the Canadian mortgage insurance market. AIG United Guaranty Canada started offering mortgage insurance to Canadians in 2006 and will even insure mortgages with 0% down payment – something unheard of in Canada. There are more US mortgage insurance companies that are interested in entering the Canadian market.

The mortgage insurance protects the mortgage lender from defaulting of the borrower, but the borrower himself is not protected even though he pays for the insurance. The amount of mortgage insurance premium depends on the amount of down payment you are making. The higher the down payment you have the less mortgage insurance you pay.

The mortgage insurance premium can be paid in cash, but many Canadians cannot afford that and they opt to add the insurance premium on top of the mortgage, which makes it even more expensive for them because they have to pay interest on the mortgage insurance too.

Even though the Canadian law doesn't require mortgage insurance for borrowers with down payment of 20% or more, the mortgage lender might require the buyer to pay mortgage insurance if the loan is considered high risk.



Copyright © 2009 Art Branch Inc. All rights reserved. | About Us | Privacy Policy