Do you need mortgage loan insurance?

Find out how mortgage loan insurance can help you buy your dream home.

Many Canadians find themselves in the same conundrum: You’ve found the home you want to make your own, but you haven’t saved enough to cover the 20 per cent the bank is requiring in order to get the home loan.

Mortgage loan insurance provides an alternative to waiting several years stockpiling cash. So you can snag a great interest rate while it’s still available or locking down your dream home before someone else beats you to it. In fact, you can finance up to 95 per cent of your home cost – you only have to come up with a 5 per cent down payment!

Mortgage loan insurance is how a lender protects itself when providing a loan to a borrower who can’t afford the required down payment. Essentially, if you default on your loan, the insurance company to whom you’ve been paying the mortgage insurance premiums will make good on any amount still owed to the lending institution after your home sells.

There are several factors that go into determining how much you’ll have to pay to insure your mortgage:

• Employment status: If you have a full-time job with verifiable income, your insurance premium will be lower than if you are self-employed or own your own business
• Amortization duration: You will pay less on a 25-year mortgage than a 30-year, and even less on shorter-term loans
• Energy-saving homes: If you buy a home with built-in sustainability features or make renovations that reduce your home’s carbon footprint, you could receive a 10 per cent refund if your insurance is through Canada Mortgage and Housing Corporation (CMHC)
• Big down payment: The more cash you can put down up front on your home purchase, the less you’ll have to pay for mortgage insurance

Canada Mortgage and Housing Corporation (CMHC) is a federal program that is the nation’s largest provider of mortgage loan insurance; its private-sector firms are Genworth MI Canada and Canada Guaranty.

CMHC announced earlier this year that it will no longer offer mortgage loan insurance on second homes, and it now requires standard documents that prove income for self-employed borrowers. The two private companies, however, do offer mortgage loan insurance on second homes (limited to single-unit homes) and have easier requirements for the self-employed.

Each insurance provider has its pros and cons and it’s a good idea to discuss your particular needs with your mortgage loan provider to determine which offers the best options for you.

Also, it’s important to understand that the availability of mortgage loan insurance does not necessarily mean you can afford a home – you should create a detailed budget to make sure the time is right to secure a loan.