STEP 6. MORTGAGE LOAN INSURANCE
When you need a mortgage loan that is more than 75% of the purchase
price of your home,
a mortgage loan insurance is required. It
protects the lender and, by law, most Canadian lending institutions
require it.
Having mortgage loan insurance means that if you, the borrower,
default on your mortgage, the lender is paid back by the insurer - CMHC
or a private company. With
the risk of losing their money removed, lenders have the confidence to
make mortgage loans of up to 95% of the purchase price of the home.
That means your down payment can be as little as 5% of the house
price. With mortgage loan insurance, many Canadians who might be unable
to obtain a 25% down payment can still buy a home.
What does mortgage loan insurance cost?
First, you pay an application fee . If you provide a valid appraisal,
the fee is $75; otherwise, it's $235. Neither the $75 or $235
application fee covers inspection or appraisal services. Your interest
is best protected by obtaining these services through your own
independent consultant.
Mortgage loan insurance premiums range from 0.5%-3.75% of the amount
of your loan (additional charges may apply), depending on the size of
the loan and the value of your home. The premium can be added to your
mortgage loan and paid off as part of your regular mortgage payments, or
paid off in a lump sum at the time of purchase to save interest charges
on the premium itself.
Where can mortgage loan insurance be obtained?
See your lender, who can obtain mortgage loan insurance from CMHC or
a private insurer.
CMHC will insure mortgages of up to 95% of the home’s purchase
price or the market value of the property, whichever is less.
(Restrictions may apply. Contact your local lender.)
Both new and resale homes are eligible. Here are some of the criteria
that must be met:
Right now, 3 million |
Canadians own homes
with |
insured mortgages. |
- The home must be in Canada and must be your principal residence.
- Housing payments, including principal, interest, property taxes,
heating (P.I.T.H.), the annual site lease in the case of leasehold
tenure and 50% of applicable condominium fees, can’t be more than
32% of your gross house-hold income (GDS ratio).
- Your total debt load can’t be more than 40% of your gross
household income (TDS ratio) . Other criteria apply and are subject
to change. For details, please contact CMHC or your local lender.
Ruth and Sidney lived in a rented Revelstoke home for seven
years.
When the landlord decided to sell the home, he offered the
couple the first opportunity to buy it.
|
 |
While his price was fair, Ruth and Sidney didn’t have a 25%
down payment saved, so they couldn’t qualify for a
conventional mortgage.
While looking for other options, they found they could be
eligible for mortgage loan insurance that would allow them to
buy with as little as 5% down.
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