What the heck is mortgage default insurance?

So when you are getting a mortgage you start to learn about terms that you become somewhat familiar with but only because they seem to be forced upon you. This week I am going to take a look at mortgage default insurance and everything you should know.

Mortgage default insurance protects the mortgage lenders in case you default on your mortgage but the cost is yours I’m afraid. If a default were to happen, the mortgage insurer has guaranteed the lender will not take a loss on the loan. There are three mortgage insurers in Canada. We have the Canada Mortgage and Housing Corp. AKA CMHC, Genworth and Canada Guaranty. They all work in the same way really but have slightly different criteria as to which loans they will insure.

Most of the time we think of mortgage default insurance as for borrowers putting less than 20% of the purchase price down. The premium amounts are calculated as follows:

Standard Premium Rate Chart

LTV Ratio Premium Rate

– Up to 65% 0.60%

– 65.01% – 75% 0.75%

– 75.01% – 80% 1.25%

– 80.01% – 85% 1.80%

– 85.01% – 90% 2.40%

– 90.01% – 95% 3.60%

This is the base line for the premium rates. There will be an increase for self-employed people who cannot verify their employment income as per traditional guidelines. There will also be an increase premium if you are purchasing a second home as a vacation property or for a family member.

The math is calculated as follows:

– Purchase price less the down payment plus the mortgage insurance premium. The total amount becomes what you are borrowing from the lender though so that you do not have to come up with that premium out of pocket.

– If you end up selling and moving within the first two years you can port a percentage of the premium with you so that you do not have to incur the entire amount again.

– One thing many people are unaware of is that even if you put the full 20% down, the lender may apply for the mortgage default insurance anyway. This is to increase the security they and their investors have in regards to the mortgage. Most of the time the insurance premium in these cases are covered by the lender but in special circumstances, such as a rental property, you may still be required to pay it.

– The mortgage insurers are backed by the Government of Canada which means that our government is actually guaranteeing the loan. This exposure to the housing market is why they keep stepping in to change the mortgage rules and why it seems harder and harder to qualify these days.

One perk to the whole thing is this. If you are having trouble making your mortgage payments because of illness or job loss, you have a strong ally in your corner. It is far less costly for a mortgage insurer to attempt to work with you then it is for them to cover the costs of you defaulting. At the first sign of trouble call you lender and figure out which mortgage insurer you are with so you can get them on board. No one wants to see you lose your home.

So there you have it. Mortgage default insurance in a nutshell.

Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.

Just Posted

Gord Bamford Foundation Charity Gala brings the stars to Central Alberta

The Gala raises money for various children’s charities throughout Canada

The Dragonfly Children’s Healing Centre set to open next month

Expanded programming will broaden scope of The Outreach Centre’s work

Special air quality statement in effect for Central Alberta

Wildfire smoke from B.C. covering 95 per cent of the province

Blackfalds RCMP warn of attempts to steal property

This week two males attempted to steal a utility vehicle from a rural property

Tools for Schools program in need of school supplies for students

Supplies will be donated to students across Central Alberta

Updated: ‘Queen of Soul’ Aretha Franklin has died

Publicist Gwendolyn Quinn reports Franklin passed Thursday at 9:50 a.m. at her home in Detroit

Police looking to identify serial groper in Edmonton

EPS seek assistance to identify suspect in brazen sexual assaults

Woman in custody after topless crane climb near Toronto waterfront

Toronto police have apprehend a woman who climbed crane cab near waterfront

‘Hot and dirty work:’ Commander describes fighting massive Ontario wildfire

Ontario has seen more than 1,000 forest fires so far this year, compared to 561 in all of 2017.

‘Billion-piece jigsaw puzzle:’ Canadians key to 1st complete map of wheat genome

The paper has 202 authors from 73 research agencies in 20 countries.

Airbnb’s federal budget proposal tells Liberals, ‘we want to be regulated’

Submission says ‘we want to be regulated’ and asks the government to avoid forcing existing rules

Ponoka RCMP arrest man after setting shed on fire

The man used an axe to destroy a shed before setting it on fire

UPDATED: B.C. RCMP dismantle Kinder Morgan protest camp

RCMP say they will enforce a court injunction today and remove Trans Mountain pipeline protesters who have been camped outside a Kinder Morgan terminal in Burnaby.

Italy says death toll will mount in Genoa bridge collapse

Authorities worried about the stability of remaining large sections of a partially collapsed bridge evacuated about 630 people from nearby apartments.

Most Read