When considering buying a dream home, many things will run through your mind. One such thing is how you’re going to pay for it. Saving for a house involves putting away your hard-earned money for years and making sacrifices along the way. You also need to be saving money so you can get it insured.
Mortgage insurance, sometimes called home buyer’s insurance in Canada, is a reliable way to help you spend less upfront yet still afford your dream home and make your family’s future that much more secure.
What is mortgage insurance?
Mortgage insurance helps you secure your home sooner rather than later by lowering the down payment you have to make. Qualified borrowers can purchase a home for as little as five percent down as a result. That means, as a home buyer in Canada you’ll make a down payment of 20% or less. For high-ratio mortgages in Canada, you need mortgage insurance to help you during the home purchasing process.
Home buyer’s insurance in Canada protects lenders and investors against losses from borrower default and foreclosure. That affords the lender the ability to offer people with low down payments the same low-interest rates they would provide to home buyers with more equity.
The insurance costs depend on the mortgage type you apply for and the down payment amount. Like with other insurance policies, the premium is paid and is charged to the lender, who passes the premium cost onto the borrower. Once you have a 5% to 20% down payment sorted out, you’ll need to know about this insurance type.
Just remember that mortgage insurance isn’t the same thing as “homeowner or property insurance” or “mortgage life insurance.” In contrast, property insurance protects homeowners against any damages or any unforeseen disasters.
Mortgage life insurance repays any outstanding mortgage debt in case the homeowner is permanently unable to pay for it. Knowing the differences could save you money and prevent you from paying more than you should be for your new home, especially if you’re a first-time home buyer.
How do you qualify for mortgage insurance in Canada?
To be eligible for mortgage insurance, you must meet various criteria before your insurance provider gives the green light. To qualify for home buyer’s insurance Canada-wide, you need to:
- Prove your home is located in Canada.
- Pay a minimum down payment on your home of 5% on the first $500,000 and then 10% of the remaining cost above that amount.
- Make sure your total monthly housing costs don’t exceed 32% of gross household income. Those total monthly costs include principal, property taxes, interest, and heating.
- Make sure your total debt doesn’t exceed 40% of household income. The total debt combines your total monthly costs plus the annual site lease in leasehold tenure case. Add 50% of condominium fees (if applicable) plus payments on other debt divided by gross annual household income.
Note that if you want to purchase a home for more than one million dollars, you won’t be eligible to get home buyer’s insurance in Canada.
Pros and cons of mortgage insurance
One big reason home buyer’s insurance in Canada and elsewhere is a go-to insurance type for homeowners is that it has a high acceptance rate. The Canadian housing market welcomes several potential homeowners, considering buyers would have more trouble in buying a home without it.
If you have a full-time job, you’re more likely to secure a lower mortgage insurance premium than people who own their own businesses. Plus, if you’re someone who likes to live a green lifestyle, you could save some green for yourself by qualifying for a partial refund on your mortgage insurance payment.
Mortgage or home buyer’s insurance in Canada makes makes home ownership safe and accessible. Get an accurate 5-minute quote to see your rate right here!