First Time Home Buyer - Mortgage Insurance
Posted by Sean Stewart
on 22 March 2021
 "First Time Home Buyer - Mortgage Insurance")
Mortgage insurance, what is it and why do I need it?
If you are putting less than 20% down payment on purchasing a property then it is a federal law that you have to pay for mortgage insurance. That's right, you have no choice. It is federal law, there is no way around it.
Mortgage insurance is insurance that protects the lender in case you default on the loan. If for whatever reason you are not able to pay your mortgage then the lender can make an insurance claim to get their money back. It is insurance that you pay for but that protects the lender.
The lender does not provide mortgage insurance, there are three independent companies that offer this type of insurance. CMHC (Crown Corporation), Genworth, and Canada Guaranty. You as the consumer do not need to deal with these insurance companies, the lender applies for this insurance on your behalf before they will approve your mortgage.
It is a two-step process that happens behind the scene. First the lender will approve your mortgage application and then the insurance company approves your application. With both approvals, then the lender can offer you a mortgage commitment letter. If the lender approves your application but the insurer does not, then no mortgage for you! Both need to approve. [Remember this is only for purchases with less than 20% down].
The insurance premium can be up to 4% of the mortgage amount. You can add this premium to the mortgage amount and you do not need to pay it up front. It is a one-time premium only and is for the life of the mortgage. The province of Ontario does charge sales tax on this premium amount which you do need to pay at closing.
For example, if the mortgage insurance premium is $20,000, then you will need to pay the provincial sales tax of $1,600 ($20,000 * 8%) at the time of closing.
Contact Us
For more information on mortgage insurance, contact your local Ajax Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com
If you are putting less than 20% down payment on purchasing a property then it is a federal law that you have to pay for mortgage insurance. That's right, you have no choice. It is federal law, there is no way around it.
Mortgage insurance is insurance that protects the lender in case you default on the loan. If for whatever reason you are not able to pay your mortgage then the lender can make an insurance claim to get their money back. It is insurance that you pay for but that protects the lender.
The lender does not provide mortgage insurance, there are three independent companies that offer this type of insurance. CMHC (Crown Corporation), Genworth, and Canada Guaranty. You as the consumer do not need to deal with these insurance companies, the lender applies for this insurance on your behalf before they will approve your mortgage.
It is a two-step process that happens behind the scene. First the lender will approve your mortgage application and then the insurance company approves your application. With both approvals, then the lender can offer you a mortgage commitment letter. If the lender approves your application but the insurer does not, then no mortgage for you! Both need to approve. [Remember this is only for purchases with less than 20% down].
The insurance premium can be up to 4% of the mortgage amount. You can add this premium to the mortgage amount and you do not need to pay it up front. It is a one-time premium only and is for the life of the mortgage. The province of Ontario does charge sales tax on this premium amount which you do need to pay at closing.
For example, if the mortgage insurance premium is $20,000, then you will need to pay the provincial sales tax of $1,600 ($20,000 * 8%) at the time of closing.
Contact Us
For more information on mortgage insurance, contact your local Ajax Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com
Author:Sean Stewart
About: Mortgage Broker
| Tags:First Time Home Buyer |
