What is Mortgage Insurance?
Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. This insurance premium is a lump sum that is worked into your mortgage, and is therefore included in your regular mortgage payment.
There are 3 insurers in Canada: AIG, CMHC and Genworth.
In Canada, mortgage insurance is mandatory for anyone with a down payment that is less than 20-25% of the purchase price of the property (the percentage range varies with each lender). The closer the down payment is to this 20-25% mark, the lower the premiums are.
For example, Mr. Smith decides to purchase a house which costs $150,000. His down payment is $15,000, which is 10% of the purchase price, and he obtains a mortgage for the remaining $135,000 dollars. At 10% down with a 25 year amortization, Mr. Smith mortgage insurance premium would be approximately 2% of the mortgage amount, or $2,700. Mortgage insurance premiums will increase by .2% for every 5 years added on to the amortization.
Now, Mr. Smith’s situation is very simple one (not to mention the fact that finding a good property in Calgary today for $150K is nearly impossible). It is entirely up to the lender to include mortgage insurance and how much, regardless of the percentage of the down payment.
Lenders will include mortgage insurance as a way of mitigating risk, dependent upon each individual situation.