Mortgage insurance is a type of insurance that covers you if you are unable to make your mortgage payments due to financial hardship. It is a common feature of mortgages in Canada and is required if you don’t have a minimum of 20% down payment. This article will provide a guide to mortgage insurance in Canada and explain how it works and the different types of mortgage insurance available.
What Is Mortgage Insurance?
Mortgage insurance is an insurance policy that covers you in the event that you cannot make your mortgage payments. It protects lenders from financial losses if you fail to make payments, allowing them to offer mortgages to borrowers who don’t have a lot of money for a down payment. In Canada, mortgage insurance is required if you have a down payment of less than 20% of the purchase price of the home.
Types of Mortgage Insurance
There are two types of mortgage insurance available in Canada: mortgage default insurance and mortgage life insurance.
Mortgage Default Insurance
Mortgage default insurance, also known as mortgage loan insurance, is a type of insurance that is required if you have a down payment of less than 20%. It is provided by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. The premium for this type of insurance is calculated as a percentage of the loan amount and is typically paid for by the borrower.
Mortgage Life Insurance
Mortgage life insurance is a type of insurance that pays off the remaining balance of your mortgage if you pass away. It is an optional insurance policy that can be purchased to provide financial security to your family in the event of your death. This type of insurance is not provided by the CMHC or Genworth Financial Canada and must be purchased from a third-party insurer.
How Does Mortgage Insurance Work?
Mortgage insurance works by covering the lender in the event that you cannot make your mortgage payments. If you default on your loan, the insurance company will pay the remaining balance of the loan so that the lender does not suffer a financial loss. The insurance company will also cover your legal fees and any other costs associated with the foreclosure.
Mortgage life insurance works by paying off the remaining balance of your mortgage if you pass away. This ensures that your family does not have to worry about making mortgage payments in the event of your death.
Benefits of Mortgage Insurance
Mortgage insurance provides several benefits to both lenders and borrowers. For borrowers, it allows them to purchase a home even if they don’t have a large down payment. It also provides financial security to families in the event of the borrower’s death. For lenders, it protects them from financial losses in the event of a default.
Conclusion
Mortgage insurance is an important part of the home buying process in Canada. It is required if you have a down payment of less than 20% and provides financial security to both lenders and borrowers. This article has provided a guide to mortgage insurance in Canada, including the different types available and how it works.