For most home buyers (especially first-time buyers), the hardest part of new homeownership comes with having to save a down payment. The good news is, mortgage default insurance (often referred to as mortgage loan insurance) is here to help.
Here’s what you need to know:
What is Mortgage Default Insurance?
According to Canada’s mortgage rules, mortgage insurance is mandatory on all down payments ranging from 5% (the required minimum) to 19.99%. It also serves two essential purposes: 1) to help Canadian home buyers, just like you, purchase a new home more easily and 2) to protect mortgage lenders in the event of a default on your mortgage loan.
In short, while this type of insurance typically costs an additional 2.80% - 4.00% of the overall mortgage amount (financed through your mortgage payments), it does help home buyers obtain financing on up to 95% of a home’s total purchase price (i.e. a home with a purchase price of $300,000 would require a minimum 5% down payment of just $15,000).
More on the Minimum
As we mentioned, mortgage default insurance is required on all down payments between 5% and 19.99%. But how much you’ll need for a down payment will also depend on the home’s sale price. For instance:
All homes of $500,000 or less will require a minimum 5% down payment Homes of $500,000 or more will require a minimum 5% down payment on the first $500,000, then an additional 10% on the remaining balance Homes of $1,000,000 are not eligible for mortgage loan insurance
Do You Qualify For Mortgage Loan Insurance?
While mortgage insurance is generally easy to qualify for, there are a few conditions that must be met beforehand. These include:
The home you’re purchasing is located within Canada and will serve as your principal residence. Your Gross Debt Service Ratio (GDS) does not exceed more than 39% of your gross household income. This includes your mortgage payments and heating costs, as well as your property taxes. Your Total Debt Service Ratio (TDS) does not exceed more than 44% of your gross household income. This includes your housing expenses (your GDS Ratio) as well as your total debt load, such as credit card payments, lines of credit, car loans, etc. Proof of down payment as well as closing costs (usually 1.5% of the home’s overall purchase price on average) to cover additional expenses associated with appraisals, legal fees, inspections, etc.).
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