Home Buyers In Canada are Getting Mortgage Insurance – Why You Should Care?
For those wanting to acquire a home, the Canadian housing finance system has made it possible to do so without paying all the down payment. Better yet, it allows buyers to purchase a mortgage with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment.
What makes this possible? This is made possible by purchasing mortgage insurance for the amount borrowed on the loan. While you are able to get a home without paying the entire down payment, the lender is able to reduce the risk of a default loan.
What are the Requirements?
However, not all home buyers will be able to get mortgage insurance; there are some requirements to qualify.
The residence needs to be in Canada to meet the first requirement. The buyer must make a down payment of at least 5% on single-family and two-unit dwellings and 10% on three- or four-unit homes. The down payment must come from your own recourses, but a contribution from an immediate relative is acceptable.
Also, the total monthly housing costs that include principle, interest, property taxes, heat, the yearly site lease in case of household tenure, and 50% of applicable condominium fees should not represent more than 32% of your gross household earnings.
Also, to qualify for the mortgage insurance, your liability load should not be more than 40% of your gross household income.
The amount of closing expenses and fees can also play a roll in deciding your eligibility for loan insurance.
Will this cost much?
The mortgage company pays for the mortgage insurance by paying the insurance premiums. Though the responsibility for paying for the mortgage insurance is technically on the mortgage company, the broker will pass the cost on to you.
So, how much is mortgage insurance? There are different answers to that question. The cost of the insurance and the amount of the loan are directly correlated. The less you borrow, the less your insurance will be. This helps those who pay more for a down payment.
Buyers can even pay the insurance premium in diverse ways. The insurance premiums can be paid monthly as a part of the buyers mortgage payments or up front in a large lump sum.
Purchasing mortgage insurance does not mean you are safe if you default on a loan. The broker is just insured on the borrowed loan. On the plus side, it enables you to buy a home you were not otherwise able to buy.
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