Mortgage Loan Insurance Rates
Mortgage loan insurance is an insurance for lenders for the mortgage amount funded. But, this is usually applicable when your downpayment is minimum. Furthermore, you may add the mortgage premium in your mortgage or pay as lump sum. And the lender will pay the insurer directly the mortgage premium.
How much is the mortgage loan insurance premium? How to avoid paying hefty premiums?
The premium is calculated as a percentage of the mortgage. And it is based on the size of down payment (loan to value ratio). The key to saving premium is buying putting more downpayment. Here is the premium chart showing charges for premium (sourced from CMHC):
- 0.60% premium for loan up to 65% of home value.
- 1.70% premium for loan up to 75% of home value.
- 2.40% premium for loan up to 80% of home value.
- 2.80% premium for loan up to 85% of home value.
- 3.10% premium for loan up to 90% of home value.
- 4.00% premium for loan up to 95% of home value.
Learn more about minimum downpayment requirements. As you might’ve heard, CMHC, Genworth and Canada Guaranty are the 3 mortgage insurers in Canada. While CMHC is government owned crown corporated insurer, the other 2 are privately owned. Indeed, all the 3 insurers charge the same premium rate.
Why insure mortgage if I am putting 20% downpayment?
One of the reasons is insured mortgages are offered discounted rates. Hence the lower rates decrease interest payments and cost of borrowing. The difference in interest rate may supersede the cost of paying some extra premium. Secondly, lenders may ask you to get mortgage insurance depending on their guidelines. For example, in some cases of commercial and high risk residential mortgages.
CMHC lowered the capacity for home buyers putting less than 20% down. Because the GDS and TDS were lowered to 35 and 42%. Thereby, decreasing the purchasing power of home buyers by 12%.
However, good news is Genworth and Canada Guaranty’s GDS and TDS max still remains at 39% and 44%.
Note: It is good to have at-least one borrower have a credit score of 680 or more. Secondly, non-traditional sources of downpayment (borrowed downpayment) are no longer considered equity for insurance purposes.