Mortgage Insurance in Canada

Mortgage insurance is a type of insurance policy that aims to compensate investors or financial institutions in case of default. Depending on the issuing institution, mortgage insurance may be private or public. In Canada, all mortgage loans have to be insured if the down payment is less than 20 percent. There are three companies one can buy insurance policies from - Genworth Financial Canada, Canada Mortgage and Housing Corporation, and Canada Guarantee, which entered the market in 2006 (AIG United Guaranty Canada was bought by the Canada Guaranty Financial Corporation in 2010. Its name was then changed to Canada Guaranty Mortgage Insurance Company).

The Canada Guaranty Mortgage Insurance Company offers a variety of mortgage insurance policies, among which Downpayment Advantage, Purchase Advantage Plus, Refinance Advantage, Lifestyle Advantage for second homes, and others. Downpayment Advantage, for example, is a good choice for clients who can make down payment using their own resources or the amount is gifted from family members. The maximum LTV is 95 percent for one to two units and 90 percent for three to four units (one unit owner-occupied). The required credit score is 680 and above.

Another option is to buy insurance from Genworth Financial Canada. The company offers financial services to builders, retailers, mortgage brokers and lenders, as well as home buyers. One option is the Energy Efficient Housing Program, available to persons who intend to buy an energy-efficient home or refinance by making energy-efficient improvements.
Significant premium savings are offered to them, including a 10 percent refund on premiums. Under the Extended Amortization Program, the company offers insurance policies on mortgage loans with an amortization up to thirty years. The purpose of the loan should be any of the following: refinance to repay existing financing, renovation, or debt consolidation; purchase cover transactions and improvements, etc. Portable mortgage default insurance is also offered to Canadians, and the loan purpose should be either refinance or purchase. Many financial institutions have a portability feature, allowing borrowers to transfer their existing mortgage loan to another property. This saves the cost of setting up another mortgage loan, and the low interest rate is preserved.

A third company one can buy insurance from in Canada is the Canada Mortgage and Housing Corporation. Those who choose to buy from CMHC should check the list of approved lenders first. Among them are Bank of Montreal, Alterna Savings and Credit Union, Bank of Nova Scotia, TD Canada Trust Company, and many others. The Canada Mortgage and Housing Corporation requires that the home you seek to buy is located in Canada, and the down payment is at least 5 or 10 percent, depending on whether it is a single-family/ two-units dwelling or a three-unit/ four-unit dwelling. Other requirements may apply as well, so it is best to check with your mortgage broker or financial institution of choice. The mortgage premium depends on the LTV, for example, the standard premium is 0.50 percent, for LTV up to and including 65 percent. Up to and including 95 percent, the premium increases to 2.9 percent. An extended amortization premium and a 10 percent premium apply, without surcharge, if mortgagors seek to finance energy-efficient homes.

In general, mortgagors can pay the insurance premium in cash, which is one option. Those who cannot afford to do this may add the premium to the mortgage loan amount. This, however, makes borrowing expensive given that interest is paid on the premium as well. Finally, it should be noted that borrowers who opt out of mortgage insurance save on the insurance premium, but they will usually pay higher administrative fees and interest rates. As mentioned, this may not be possible if the down payment is less than 20 percent.