Mortgage Insurance Explained

Mortgage insurance acts as a safety net for your lender in the event that you are unable to make your mortgage payments, but you must pay for it yourself. If your down payment is less than 20%, you have a negative credit history, or you are self-employed, it is frequently necessary.  Let's dive in...


Mortgage Insurance


The mortgage lender is protected by mortgage loan insurance in case you can't pay your mortgage payments. It doesn't keep you safe, but you pay for it. Mortgage default insurance is another name for mortgage loan insurance.


If your down payment is less than 20% of the price of the home, you must buy mortgage loan insurance.


Even if you put 20% down, your lender may still require you to get mortgage loan insurance. Most of the time, this is the case if you work for yourself or have a bad credit history.


There is no mortgage loan insurance if:


  • The price to buy the house is at least $1 million


  • The loan doesn't meet the requirements of the mortgage insurance company.


If you require mortgage loan insurance, your lender will coordinate it.  


Mortgage insurance premiums cost between 0.6% to 4.5% of the amount of your mortgage.  The premium depends on the down payment.  The higher the down payment, the lower the mortgage insurance premium.  


Canada Mortgage and Housing Corporation (CMHC), Sagen, and Canada Guaranty Mortgage Insurance Company are the 3 main companies that provide mortgage insurance in Canada.


Conventional vs High Ratio Mortgage


A mortgage is either considered a conventional or a high ratio mortgage.  A conventional mortgage is when the mortgage amount divided by the property value is 80% or less.  A high ratio mortgage is when the mortgage amount is greater than 80% of the property value.  High ratio mortgages will require mortgage insurance.  


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