Mortgage Loan Insurance 101

March 6, 2014

house with money flowing out of itCanada Mortgage and Housing Corporation (CMHC) and Genworth Canada, providers of mortgage loan insurance in Canada, have announced an increase in mortgage loan insurance premiums which will come into effect on May 1, 2014.

What is mortgage loan insurance?

When home buyers do not have at least 20% to put towards the down payment of a new home, lenders require mortgage loan insurance.

Even though the purpose of this insurance is to cover the lender in case the homeowner defaults on their mortgage, it benefits home buyers as it gives them the opportunity to  purchase real estate with as little as 5 per cent down and still get mortgage rates comparable to those who have a 20 per cent down payment.

The cost of the insurance premium is passed on to customers. It can either be paid up front as a lump sum or be added to the customer’s regular mortgage payments and amortized over the life of the mortgage.

What’s the premium increase?

For both CMHC and Genworth, the increase in premiums will depend on the size of the home buyer’s down payment, which then feeds into their loan-to-value ratio (LTV). The loan-to-value ratio tells you how much of a property is financed, or on the flip side, tells you how much equity the owner has in a property.

New CMHC & Genworth Mortgage Insurance Premiums

Loan-to-Value Ratio

Standard Premium

(Current)

Standard Premium

(Effective May 1st, 2014)

Up to and including 65%

0.50%

0.60%

Up to and including 75%

0.65%

0.75%

Up to and including 80%

1.00%

1.25%

Up to and including 85%

1.75%

1.80%

Up to and including 90%

2.00%

2.40%

Up to and including 95%

2.75%

3.15%

For informational purposes only. Not intended to provide advice for any individual. For specific guidelines related to the above products, please visit CMHC and Genworth

How does this premium increase impact the housing market?

The increase does not affect homeowners who already have CMHC-insured mortgage.

However, for new home owners who buy with less than 20% down and need mortgage loan insurance, the higher premium will result in an increase of approximately $5 to monthly mortgage payments.

This increase is not expected to have a material impact on the housing market.CMHC provides the following examples:

95% Loan-to-Value

Loan Amount $150,000 $250,000 $350,000 $450,000
Current Premium $4,125 $6,875 $9,625 $12,375
New Premium $4,725 $7,875 $11,025 $14,175
Additional Premium $600 $1,000 $1,400 $1,800
Increase to Monthly Mortgage Payment $3.00 $4.98 $6.99 $8.98

Reference only, by CMHC. Based on a 5 year term @ 3.49% and a 25 year amortization

And Who are CMHC and Genworth?

CMHC, a government-owned corporation, and Genworth Canada, a private sector supplier of mortgage default insurance in Canada, are two of the three providers of mortgage loan insurance in Canada. The third  is Canada Guaranty, a Canadian-owned private mortgage insurance company

What is the difference between Mortgage Loan Insurance and Mortgage Life Insurance?

Mortgage loan insurance is not the same as mortgage life insurance. Here are the differences:

  • Mortgage loan insurance is required by lenders every time a homebuyer makes a down payment of less than 20% of the purchase price. The premium is usually added to your mortgage and included in your monthly payments.
  • Mortgage life insurance:  term life policy to cover your mortgage in case of your death, ensuring that your family is not left behind with mortgage payments they won’t be able to afford.  


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