What is Mortgage Default Insurance?
Mortgage Default Insurance is typically required by lenders when home buyers make a down payment of less than 20% of the purchase price. Mortgage Default Insurance helps protects lenders against mortgage default, and enables consumers to purchase homes with as little as 5% down payment - with interest rates comparable to those with a 20% down payment..
To obtain Mortgage Default Insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. Mortgage Default Insurance can be purchased from either the Canadian Mortgage and Housing Corporation (CMHC) or Genworth Financial. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments. Your lender will give you the exact price when you apply for a mortgage.
Mortgage Default Insurance is not to be confused with Mortgage Life Insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
How Much Does Mortgage Default Insurance Cost?
Mortgage Default Insurance premiums are calculated as a percentage of the loan and are based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums. Premiums are generally in the 1.75% to 2.75% for most borrowers.
Remember: without mortgage insurance you may avoid the insurance premium but you’ll typically pay much higher interest rates and additional administrative fees. At the end of the day, for the vast majority of borrowers, the cost of Mortgage Default Insurance is more than fully offset by the savings achieved.
Click here for the current premiums charged by CMHC for Mortgage Default Insurance.
Click here for the current premiums charged by Genworth for Mortgage Default Insurance.