Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.
To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. 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.
Mortgage loan 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.
The two most common mortgage loan insurers are:
CMHC is a government/taxpayer backed organization whereas Genworth is a publicly traded company. The majority of mortgages in Canada are CMHC insured.
It is important to note that CMHC will waive their fees if you put 20 per cent down or more on your new home. This will save you thousands.