Top 3 Mortgage Insurance In Canada
Are you looking to buy a house? Are you short of funds and want to take a mortgage loan? If that is true, have you ever thought about who will make your defaulted mortgage payments? Well, we are here to help. This article will tell you everything about mortgage insurance in Canada and its various popular products. So, keep reading.
What Is Mortgage Loan Insurance?
“It has been three years since I took a mortgage loan from Scotiabank. Every day I worry about my outstanding balance, which I am supposed to pay in the next 17 years. I am the sole earner in my family, and there is nobody who can pay off my dues in my absence.,” said Noah Brown, a resident of the Greater Toronto Area who purchased a house in Clarington.
Noah feels stressed as she is unaware of the Mortgage Loan Insurance, which provides you with a protective shield. If you cannot pay your mortgage loan, the insurance company will take care of it.
What Are Different Mortgage Loan Insurance Products?
Several insurance products are available in the market sold under the mortgage loan insurance category. Let us now read about some of the major ones.
1. Mortgage Default Insurance or CMHC (Canada Mortgage and Housing Corporation) Mortgage Insurance
- You will buy mortgage default insurance if you secure less than 20% of the asking price in a down payment.
- Most lenders and financial institutions make it compulsory for the borrowers to purchase this insurance product if the LTV (Loan to Value) ratio is less than 80%.
- After buying this insurance policy, you can even buy a house by making a down payment, which is as low as 5% of the asking price.
- In Canada, three distinct organizations are eligible to sell such an insurance policy. These are:
- Canadian Mortgage and Housing Corporation (CMHC)–Market Leader and Apex Body
- Genworth Financial and
- Canada Guaranty
- In the event of your default, the insurance company will pay off the balance mortgage loan.
However, to qualify for Mortgage Default insurance, you must satisfy the following requirements:
| Conditions | Limit |
| Credit Score | 680 or above |
| Gross Debt Service Ratio | Less than 35% |
| Total Debt Service Ratio | Less than 42% |
| Cost of House | Less than $1 million |
| Amortization Period (of Mortgage Loan to be insured) | Not more than 25 years |
| Borrowing of Money for Down Payment | No (you must arrange for a down payment out of your funds or from gifts) |
Further, the premium to be paid under a CMHC Mortgage Insurance Policy and the Loan-to-Value (LTV) ratio maintain a direct relationship. Below is a list of different premiums paid under different situations:
| Loan-to-Value Ratio | Percentage of Premium (To Be Calculated On Total Value Of Mortgage Loan) |
| Up to 65% or less than that | 0.60% |
| Between 65% and 74.99% | 1.70% |
| Between 75% and 79.99% | 2.40% |
| Between 80% and 84.99% | 2.80% |
| Between 85% and 89.99% | 3.10% |
| Between 90% and 95% | 4.00% |
2. Mortgage Life Insurance
- It is an optional insurance product. No lender or financial institution can force you to buy this policy.
- In the event of your death, the insurance company will pay the death benefits, equivalent to the outstanding mortgage loan.
- The death benefits to be received under this policy keep decreasing with time. It is because you are making mortgage payments while you are alive.
- Your designated or nominated family members will receive the death benefits at your demise.
- We can only use the death benefits received for paying the outstanding mortgage loan.
3. Mortgage Disability and Critical Illness Insurance
You never know what is coming. Life is sometimes cruel and can leave you gasping for air. If you have a disability or critical illness, it will become tough to meet your monthly mortgage payments.
But when you buy a mortgage disability and critical illness insurance policy, the insurance company will pay off your outstanding mortgage loan, and protect you, your family, and your lender.
Which Insurance Policy Should I Buy?
Every insurance product is unique and used in different situations. There is no specific answer to this question, as its choice depends upon your thinking, perception, and need.
The Mortgage Default Insurance Policy is mandatory for situations where you have managed a down payment, which is less than 20% of the asking price.
However, none of the other insurance policies is mandatory, and you are free of your will to buy them. You have scooped up over 20% of the asking price. As a conservative individual, you can protect your family with Mortgage Life Insurance and a Mortgage Disability and Critical Illness policy.
