The price of the average Canadian home sold in October was up almost six percent from a year ago at $481,994.1 That’s just the average; these numbers will vary depending on where you live. In Toronto, for example, the average price of a detached home is more than $1.3 million.2 In Winnipeg, the average price is $284,799 while in Fredericton, its $159,370.3
Still, with the rising cost of home prices, increasing taxes, and unforeseen expenses, it can be extremely difficult to save for a 20% down payment. But, with the help of a mortgage professional like Canadalend.com and Mortgage Default Insurance, Canadians that are unable to scrape together a 20% down payment can still get on the property ladder.
Mortgage Default Insurance
Mortgage default insurance—more commonly referred to as mortgage insurance—helps Canadian homebuyers with a smaller down payment. Qualified borrowers can purchase a home with as little as five percent down.
In Canada, mortgage insurance is needed for all high-ratio mortgages. That is a mortgage with a down payment of 20% or less. Three different companies provide mortgage insurance in Canada : Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, and AIG.
How Mortgage Insurance Works
Mortgage insurance protects the lender in case the borrower defaults on the mortgage. This gives lenders the ability to offer those with low down payments the same kind of low interest rates they would otherwise offer to homebuyers with more equity.
The cost of mortgage insurance depends on two factors: the type of mortgage and the amount of the down payment. Just like any other insurance policy, there is a premium that has to be paid. It is charged to the lender who, in turn, passes the cost of the premium onto the borrower.
The mortgage insurance premiums typically range from 0.5% to 2.9% of the total mortgage amount. The lower the down payment is, the higher the premium. For example, a premium could be as low as 0.5% for a mortgage with a 20% down payment but could be as high as 2.75% for a mortgage with a five percent down payment.
A mortgage insurance premium can be paid in a lump sum upon closing, but it is normally added to the mortgage and paid out over the lifetime of the mortgage.
Qualifying for Mortgage Default Insurance
- To qualify for mortgage default insurance, you must meet a number of conditions:4
- The home must be located in Canada
- The minimum down payment is five percent on the first $500,000 and 10% on the rest.
- Mortgage default insurance is not available on home purchased for more than $1.0 million
- Total monthly housing costs should not be more than 32% of gross household income
- Total debt should not be more than 40% of the total gross household income
Pros and Cons of Mortgage Insurance
On the plus side, mortgage insurance allows homebuyers to purchase a home with a lower down payment. This opens up the Canadian housing market to tens of thousands of potential homebuyers who would otherwise not be able to buy one.
While it can be difficult to get life insurance, mortgage insurance has a high acceptance rate. In some instances, it can be used to protect your family from mortgage default in the unlikely event of disability or death. This can provide peace of mind for those who have risky jobs or health concerns.
Unfortunately, homebuyers have to pay for this privilege. Mortgage insurance adds to the cost of the mortgage , anywhere from 0.5% to 2.9% of the total mortgage amount.
You also have to pay the full premium amount, even if you earn more after you get the mortgage and are able to pay it down more quickly. As the amount of the mortgage declines the premium amounts stay the same.
Canadalend.com, Mortgage Brokers Working for You
There’s more to consider when looking to buy your dream home than the mortgage and interest rates. If you’re interested in seeing how much of a mortgage you qualify for, the different types of mortgages, and mortgage insurance, the independent, licensed mortgage professionals at Canadalend.com can help. They can also give you the specific premium costs and benefits of using mortgage insurance.
Canadalend.com is the nation’s leading low-cost private mortgage solution provider . Because Canadalend.com agents are independent, they are able to draw from hundreds of banks and lenders to help you find the mortgage best suited to meet your needs.
We’ll sit down with you and evaluate your financial situation and find the right lender.
The mortgage brokers at Canadalend.com can also get you pre-approved for a mortgage or loan in 24 hours or less.
If you’re interested in seeing what kind of mortgage you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.
1. “Canadian Home Sales Rise in October,” Canadian Real Estate Association, November 15, 2016; http://www.crea.ca/news/canadian-home-sales-rise-in-october/.
2. “GTA Realtors Release Monthly Resale Housing Market Figures, Toronto Real Estate Board, November 3, 2016; http://www.trebhome.com/market_news/release_market_updates/news2016/nr_market_watch_1016.htm.
3. “Comparing Housing Costs in Canada and the U.S.,” CTV News, November 16, 2016; http://bc.ctvnews.ca/from-86k-to-3-3m-comparing-costs-of-housing-in-canada-u-s-1.3155283.
4. “What are the General Requirements to Qualify for Homeowner Mortgage Loan Insurance?” Canadian Mortgage and Housing Corporation, last accessed November 16, 2016; https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm.