Canadian Mortgage Insurance
This article takes a close look at the available mortgage insurance options in Canada
. First, you have to be clear what mortgage insurance is and how it works. By definition, a mortgage insurance is an insurance policy
that provides protection for the Canadian lender
in case of default and/or guarantees repayment of the loan if the borrower becomes disabled or passes away. Mortgage insurance benefits all home buyers for several reasons: first, it saves them a bulky down payment (usually in the size of twenty percent of the real property’s price or more), increases the homeowners’ purchasing power and allows them to move in their new home sooner. In addition, first-time home buyers
may take advantage of a low down payment which makes the purchase of their first home affordable. In addition, they can buy a more luxurious home in a shorter period, whereas repeat home buyers can put smaller amount of money down and benefit from significant tax reductions, as they will have a larger amount of deductible interest to claim
With this basic notion in mind, you can also differentiate two other mortgage insurance solutions that should not be confused with a general mortgage insurance policy.
- Mortgage life insurance is an insurance policy which covers the mortgage loan in case that the borrower passes away. This type of insurance is not prohibitively costly but if there is no one to leave the property to, there is no need to get such a policy.
- Mortgage home insurance protects the homeowner from loss due to damages caused by flood, fire, earthquake or other natural disasters.
Generally, homeowners pay the
mortgage insurance premiums which fall into several categories described below.
: borrowers pay the first-year premium at closing, while an annual renewal premium is collected each month as part of the total monthly mortgage installment.
* Monthly Premiums
: although these premiums are a bit costlier than than the traditional insurance plan, they drastically reduce the insurance closing costs. In fact, borrowers pay for the mortgage insurance each month as part of their total monthly home payment. They only have to pay a 1 month insurance premium at closing, instead of one year's.
: the borrower has to pay a one-time single premium rather than renewal premiums, together with the initial premium.
Because the single premium is usually a part of the mortgage loan amount in terms of financing, the borrower does not need to pay anything at closing.
A mortgage insurance calculator
is a useful tool that calculates the amount of your mortgage insurance premium, based on the type of your mortgage loan, the loan amount, the interest rate, and the term of your mortgage loan.
Canada Mortgage and Housing Corporation
, provides flexible mortgage insurance rates which are usually determined by the amount of the mortgage insurance loan and the amount of the down payment that the homeowner had made.