Mortgage Loan Insurance for Consumers

What exactly is mortgage loan insurance? Do you need it as a consumer? If you’re thinking about purchasing a new property, then understanding the basics of mortgage loan insurance is a step in the right direction. 

What does mortgage loan insurance involve?

Let’s say you’re interested in buying a home and you have to make a down payment. A down payment is the amount that you must put towards the home in the first place. When you have a conversation with lenders about this, they will let you know that this amount will get dedicated from the home’s purchase price. The rest of the balance is where your mortgage comes in. 

As for how much you must pay as the down payment, it depends on the purchase price of the property. Your down payment situation may require you to get mortgage loan insurance. Other considerations you should think about involve your credit history and the status of your employment. A larger down payment might be large if you have a poor credit history. Meanwhile, if you are self-employed, then your lender may tell you about a higher down payment, too. 

What is the significance of the down payment amount?

As mentioned above, your down payment situation might require you to purchase mortgage loan insurance. If your down payment is equal to less than 20% of the purchase price of the home, then you would have to get mortgage loan insurance. Your lender may also advise you to buy mortgage loan insurance if your down payment amounts to 20%. 

Since your down payment plays such a significant role in whether or not you require mortgage loan insurance, it’s a no-brainer that you should be informed of how to calculate it as well.

How do I calculate my minimum down payment amount?

In order to calculate your minimum down payment amount, you should first look into the purchase price of the property of interest. If the purchase price is more than $500,000, for example, then you should add two different amounts together to get the minimum down payment. 

The first amount is 5% of the $500,000 purchase price. Meanwhile, the second amount is 10% of $100,000 as the remaining balance. When these amounts are added up together, the sum and minimum down payment amount is $35,000.

What if the property that you’re interested in costs $500,000 or less? In this particular scenario, let’s say the purchase price is $400,000. The minimum down payment of 5% of that price is, therefore, required of you. When you do the calculation, the amount is equal to $20,000.

Finally, it should also be noted that if the home you’re interested in costs $1,000,000 or more, then mortgage loan insurance is not available to you. 

What are my mortgage loan insurance options?

The Canada Mortgage and Housing Corporation (CMHC) mortgage loan insurance allows you to get a mortgage for up to 95% of a home’s purchase price. This can ensure that you get a reasonable rate when it comes to interest. According to the CMHC, having mortgage loan insurance aids in the stabilization of the housing market as well. 

Of course, don’t be afraid to speak with a financial advisor or a mortgage professional should you have any questions about which mortgage loan insurance options would work best for your unique set of circumstances. Asking questions in order to stay informed is always a great way to both plan for the present and future of your property goals.