Mortgage Default Insurance in Canada is a form of protection for lenders in the event of a borrower defaulting on their mortgage payments. It is also known as CMHC insurance, or high-ratio mortgage insurance. Generally, mortgage default insurance is required when a homebuyer is putting less than 20% down payment on their home.
Mortgage default insurance is designed to protect the lender, not the borrower. It is an insurance policy that will cover the lender’s losses in the event that a borrower is unable to make their mortgage payments. The insurance company will pay out to the lender the amount of the mortgage that has not been paid.
Mortgage default insurance is paid by the borrower as part of their mortgage application and closing costs. The insurance premium is calculated as a percentage of the loan amount. The current premium rates are as follows:
• 5% Down Payment: 4.00% of the loan amount
• 10% Down Payment: 3.10% of the loan amount
• 15% Down Payment: 2.80% of the loan amount
• 20% Down Payment: 1.80% of the loan amount
The premium is paid to the insurance company at the time of closing. It is a one-time fee and is not refundable.
In addition to the mortgage default insurance premium, the borrower will also be required to pay a one-time premium for mortgage loan insurance. This fee is calculated as a percentage of the loan amount, and is typically between 0.50%-1.00%. This fee is also paid to the insurance company at the time of closing.
Mortgage default insurance is an important part of the mortgage process in Canada. It helps to reduce the risk for lenders by providing them with protection in the event of a borrower defaulting on their payments. It also helps to make home ownership more accessible for many Canadians by allowing them to put less money down on their home.
Understanding mortgage default insurance is an important step for anyone looking to purchase a home. Being aware of the premiums and requirements will help to ensure that you are making an informed decision about your mortgage.