Sometimes part of a borrower’s regular mortgage payment includes mortgage insurance costs. There are several types of insurance, some of which are required and others which are optional.

Mortgage Default Insurance

Borrowers who make a down payment of 20% or less must be insured by Canada Mortgage and Housing Corporation (CMHC) or a private insurer. This type of insurance is a credit risk management tool for lenders. The three largest private mortgage Insurers in Canada are CMHC, Genworth and AIG.

Unlike other types of mortgage insurance, mortgage default insurance insures the mortgage loan itself. If the person(s) who owe the mortgage defaults on their loan, this insurance ensures the mortgage lender will recover all outstanding principal of the mortgage.

Mortgage Payment Insurance

This type of insurance is offered by some financial institution and guarantees that if you lose your job or your income is reduced for some other reason, your regular mortgage payments will continue to be made. This may be a good type of insurance to purchase for a borrower who works seasonally or on a commission basis.

Mortgage Life Insurance

This is an optional insurance coverage you can obtain when you take out your mortgage. In the event the borrower(s) dies before the mortgage has been paid off, mortgage life insurance will cover the balance of the mortgage loan, usually up to a predetermined maximum amount.

Mortgage Disability Insurance

Some financial institutions also offer mortgage disability insurance that protects the borrower(s) is you are injured or become ill and cannot make your mortgage payment.

In some cases, purchasing one of these policies from an insurance company may be a better value than through a mortgage lender. Whether or not you decide to acquire the mortgage payment, life or disability insurance is a personal decision you should discuss with your lender, your attorney and any co-borrowers.

Before you purchase Mortgage Insurance, be sure to read the article Choosing the RIGHT Mortgage Insurance by Adam Stephanson. This article will help you better understand much of the fine print. It will help you make sure you are REALLY covered, rather than “just thinking” you are covered!

There are many different types of mortgages and rates available in today’s marketplace. The fixed rate mortgage loan offers the most stability and terms that do not change over the life of the loan. Adjustable rate mortgages allow borrowers to take advantage of hoped-for decreasing mortgage rates in the future. Low-Interest/High ratio loans are ideal for home buyers who don’t have a large sum of money for a down payment.

A conventional mortgage is a mortgage for less than 80%-in other words the borrower provides at least 20%-25% as a down payment, and is either fixed or variable rate loans.

With fixed-rate loans, the payments remain the same throughout the term of the loan.  This is ideal for someone whose income is expected to remain stable throughout the year and who has a low tolerance for risk.

An adjustable rate mortgage loan is a good idea if the borrow believes rates will decline in the near future. This loan rate is tied to the prevailing market prime rate and rises and falls as the prime rate goes up or down. Variable rates are typically lower than adjustable rates and the initial rates are usually very low to make them attractive to borrowers.

If rates do decline, the payment remains the same, but more of the payment is applied to the principal, allowing the loan to paid off earlier. If rates do begin to rise, the loan can be refinanced to a fixed rate.

Low-Interest/High Ratio Loans

A low-interest/high ratio mortgage is a mortgage where the borrower provides a down payment of less than 20%. Mortgages for 75% or more require mortgage insurance, usually provided by Canada Mortgage and Housing Corporation (CMHC) or Genworth. The insurance premium (of up to 7.3% of the mortgage amount) offers the lender the assurance that they will be repaid should your default on your mortgage.

This is merely an overview of mortgage products available to borrowers. Check back often for information on the vast array of products and variations offered to today’s Canadian home purchaser.

Your credit report will be one of the primary documents a mortgage lender will reference when determining whether or not you qualify for their best mortgage rates. That means the process of qualifying for a mortgage begins long before you decide to buy a home! 

The number one tip on qualifying for the best mortgage rates is pay your bills on time – every time. If you can, set up on-line automatic payments from your checking account so you don’t miss a payment deadline.  The number two tip is to not accumulate too much credit card debt. Having too many credit cards or just two or three cards charged to their maximum negatively impact your credit rating, even if you pay the balance due on time each month. 

The number three tip is to have enough cash on hand to make a substantial down payment. The more you put down on your mortgage, the less risk the lender perceives in giving you a loan, because of the dollar amount you invest up front. 

The number four tip is to be prepared. Gather together all your paperwork including pay check stubs, proof of self-employment income, listing of debts and assets and a current bank statement and any other information needed. 

The number five tip is to talk to your mortgage broker about your financial situation. Find out if you can pre-qualify. Talk about what lenders require in order for you to qualify for a more favorable interest rate (more income, less debt, higher down payment, etc.). 

Be sure to contact us when you are ready to take that next step.