For many new homeowners, beginning the process of obtaining a mortgage can be daunting. With the various rates and aspects to consider, many often opt for adding mortgage insurance to their terms.
If you're keen to explore mortgage insurance but feel uncertain about where to begin, this blog is your go-to resource.
We will offer you an extensive insight into the essentials of mortgage insurance – explaining its significance, detailing its functions, and clarifying why it's an important consideration for homebuyers.
Let’s dive in!
What is Mortgage Insurance?
Mortgage insurance is a policy that protects lenders against the risk of default by the borrower. In Canada, mortgage insurance is required for homebuyers who make less than a 20% down payment on their home and is provided by the Canada Mortgage and Housing Corporation (CMHC).
Why Do You Need Mortgage Insurance?
Many homebuyers choose to invest in mortgage insurance to help them purchase a home with a smaller down payment. Without this insurance, lenders prefer a 20% down payment on a home loan, as loans with lower down payments are regarded as riskier. Mortgage insurance reduces this risk by allowing lenders to finance up to 95% of the purchase price of a home.
How Does Mortgage Insurance Work?
The total cost of your mortgage insurance is calculated as a percentage of the loan amount. The percentage you receive often varies on the size of your down payment. When it comes to paying your mortgage insurance, it can be paid as a lump sum at the time of your purchase, or added to your total monthly mortgage payments. It often covers the entire duration of your mortgage, and is only considered paid off once the mortgage has been paid off in full.
Costs of Mortgage Insurance
The cost of your mortgage insurance premium depends on several factors, including your down payment, the total mortgage amount, and the amortization period. Based on these factors, your lender will be able to estimate how much you will be expected to pay when it comes to your mortgage insurance.
Don’t Want to Invest in Mortgage Insurance?
If the additional fees that come with investing in mortgage insurance are something that you are not interested in, you are able to opt out of adding this additional expense into your budget by considering these three factors:
Put down a larger down payment: Aim to save a down payment of 20% or higher, based on the purchase price of your home.
Consider a less expensive home: A smaller mortgage may bring your average down payment into the 20% range.
Let Arise Mortgage Guide You Through The Mortgage Process
Understanding how mortgage insurance works, its costs, and ways to potentially avoid it can help you make more informed decisions in your home-buying journey. Whether you’re a first-time buyer or looking to refinance, our team will work with you to explore your options and find the best path for your financial situation.
Get in touch with us today!