Mortgage Loan Insurance - Everything You Need To Know

Mortgage Loan Insurance - Everything You Need To Know

young first time home buyers looking into mortgage loan insurance on a laptop

In Alberta, along with the rest of Canada, if you buy a property with a down payment of less than 20% of the purchase price, that mortgage must be insured with mortgage loan insurance.

The CMHC (Canadian Mortgage and Housing Corporation) is the main mortgage loan insurance provider. CMHC is backed by the Canadian government, and although they are not the only mortgage loan insurance provider, they are certainly the biggest.

The cost of mortgage loan insurance is added to your mortgage and included in your regular payments.

Benefit of Mortgage Loan Insurance

The main purpose of mortgage loan insurance is to make housing more accessible for people who struggle to save for their down payments.  With this insurance you are able to get a mortgage for up to 95% of the purchase price of the property.  Many years ago before CMHC all buyers had to have 20% down payment.

Down payment

You will need a minimum down payment in order to get mortgage loan insurance. The amount you need for the down payment depends on the property’s purchase price:

  1. If the purchase price is $500,000 or less, you’ll need a minimum down payment of 5%

  2. If the purchase price is greater than $500,000 you’ll need 5% down on the first $500,000 and 10% down on the remainder.  For example, for a $600,000 purchase price you’ll need a minimum of $35,000 down payment

  3. Mortgage loan insurance is unfortunately not available if the purchase price is more than $1,000,000 so 20% down is required

Additionally, a buyer who puts down between 5% and 19.99% will have what is considered to be a high ratio mortgage and is limited to a 25 year amortization.  With a high ratio mortgage, your payments will be higher than a conventional mortgage which can be amortized over 30 years

Mortgage loan insurance application

With mortgage loan insurance, the lender handles the whole application process, working from the documentation provided by your mortgage broker.

It’s an essential part of buying a home, particularly for first-time home buyers who often do not have more than a 20% down payment.

If you have any questions about mortgage loan insurance, you can contact me today at 403-894-8836

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