Everything You Need To Know About Mortgage Loan Insurance

Mortgage loan insurance...mortgage default insurance...CMHC insurance...Genworth insurance....Canada Guaranty insurance....1 in 3 Canadians are insured, but barely anyone knows what it is.  People often mistake mortgage default insurance for mortgage life insurance, or something that covers you if you default on your mortgage payment.  Mortgage loan insurance actually protects the lender if the borrower were to default, protecting the lenders' investments.

Canadian Mortgage and Housing Corporation (CMHC) is a crown corporation that was founded shortly after the end of World War II.  It started as an initiative by the Canadian government to assist returning soldiers in buying a home.  From there, CMHC spearheaded more and more housing initiatives that help Canadians buy homes.  Their most notable to date, is being able to offer Canadians the option to buy a home with only 5% as their down payment.  Before mortgage loan insurance, facilitating a mortgage with only 5% down was not only too high of a risk for any lender to take, but too high of a risk for any investor to take in a lender.  By offering insurance to the lenders, CMHC benefits buyers in allowing them to buy with less down payment, it benefits investors by giving them the peace of mind of knowing that their investment is safe, and it's benefiting the lenders by allowing them to lend risk free, and attract investors risk free.

In Canada, there are three insurers; CMHC, Genworth Financial Canada (GE), and Canada Guaranty(CG).   What's the difference between the three?  There are slight differences in products available, and what the different companies will insure, but the main differences lie in the ownership.  CMHC is the only government owned insurer, whilst Genworth and Canada Guaranty are private suppliers.  CMHC not only provides Canadians with mortgage loan insurance, but provides research and insight that is pivotal to the Canadian housing market.  They use their research and information to construct lending guidelines and criterion in which all of Canada's lending institutions base their mortgage products on.

If you are purchasing a home with a downpayment of 5%-19%, you are required to obtain mortgage loan insurance.  The premium is calculated against the purchase price, and the amounts range from 1% for 19% down to 2.95% for 5% down payment.  The premium increases with longer amortization, and with varying characteristics (ie. self employed, new immigrant).  The cost is amortized into the term, and a portion of the tax is due up front at the lawyers office on the day of closing.

For more information, visit www.cmhc-schl.gc.ca, www.genworth.ca, www.canadaguaranty.ca