Mortgage insurance
Few people have the resources to pay outright for their new home. The vast majority needs to borrow money to help nance their purchase and will go directly to a nancial institution such as a bank, trust company or credit union, or they may work with a mortgage broker who will arrange a loan for them.
Prior to 1954, mortgage lending was restricted to a maximum of 75 per cent of the value of a property, which meant that purchasers had to pay a minimum of 25 per cent of the value directly from their own assets for the down payment.
The National Housing Act (NHA) of 1954 introduced mortgage default insurance for loans of 75 per cent or more of the home’s value, referred to as high-ratio mortgages. This act introduced greater stability in the lending market, opened the door to more funding for mortgages and was a major step forward in providing greater opportunities for home ownership for Canadians. For home buyers, it meant being able to purchase a home and start building equity before they accumulated a 25 per cent down payment.
The process of getting mortgage insurance is easy and straightforward. After your lender has approved your mortgage in principle, they will forward an application for insurance to a mortgage insurer. This is done whenever the mortgage loan is 75 per cent or more of the value of the home you want to buy. With today’s computerized systems, applications for insurance can be processed and approved within minutes, or it may take longer if personal follow-up is required.
Home buyers pay a small processing, or underwriting, fee for the mortgage insurance application, which may vary according to the work involved. In addition, you are also required to pay an insurance premium. The rate is calculated as a percentage of the mortgage and depends on the size of your down payment; typically rates range from 0.5 per cent to 3.75 per cent of the mortgage amount. The premium can be paid as a lump sum upfront, or it can be added to your mortgage and incorporated into your monthly payments.
Recently, mortgage insurance has become portable. If you sell your home and transfer your mortgage to your new home, which is a common option offered by lenders, the mortgage insurance can be transferred as well. The insurance premium on the mortgage for your new home may be waived or offered at a greatly reduced rate, depending on the size of your new mortgage, the loan-to-value ratio and other factors.
The process of getting mortgage insurance is easy and straightforward.
Source: Canadian Home Builders’ Association