Toronto insured mortgage programs are led by CMHC, the Canada Mortgage And Housing Corporation, which provide their own programs in addition to the two other private insurance companies operating in Canada, namely Genworth and Canada Guaranty.
The reason mortgage insurance exists in the first place is to protect the mortgage lender from loss, therefore providing the lender the opportunity to approve funding in your favor in situations they would otherwise not feel comfortable or even allowed to. Under the Canada bank act, most federally regulated lending institutions are not allowed to provide mortgages over 80% loan to value unless mortgage insurance is in place.
The benefit to home owners is greater access to mortgage financing when higher ratio mortgages are required to purchase a home, build a home, or refinance a residential property.
There are insured mortgage programs available for real estate holdings other than single family dwellings, but for the purposes of this discussion, we are only going to speak to mortgage insurance for single family units which are the most common application for insured mortgages.
Mortgage Insurance effectively is a financing guarantee provided to a lender to protect them against the risk of loss. The cost of the mortgage insurance is borne by the borrower.
The primary application for mortgage insurance in Canada is in situations where the amount of residential home mortgage funding required is going to be higher than 80% of the market value of the property. In high loan to value mortgage financing scenarios, the lender will only consider the application if the applicant can also qualify for mortgage insurance through one of the three insurance providers.
Mortgage insurance is available to both employed and self employed applicants as well.
Purchasing a home where the loan to value required is between 80% and 95%. Each mortgage program will have their own requirements with respect to higher ratio mortgage, but for the most part their requirements tend to mirror those of CMHC in order for the entire financing process to better align.
Home mortgage refinance of an existing mortgage up to a loan to value of 85%. This used to be as high as 95%, but has been adjusted downward twice in the last year with the latest change dropping the loan to value ratio from 90% to 85% on March 18, 2011.
The actual insurance premium charged by the mortgage insurance company is based on the percentage of the home’s purchase price that is being financed. The higher the loan to value of the insured mortgage, the higher the insurance premium.
Even at 95% insurance, its still possible to borrower the down payment from another source to achieve 100% financing including lines of credit and private mortgage lending sources, but the key then will be the ability to meet the underwriting criteria for both the mortgage lender and mortgage insurance company for debt servicing of the both the property related debt as well as all other debt.
As we mentioned earlier, the mortgage insurance premium is the responsibility of the borrower and can be paid either as one lump sum payment or paid over time as part of your monthly mortgage payment.
There are also ways to reduce the insurance premium such as purchasing an energy efficient home.
If your looking to purchase a home or refinance an existing mortgage where in both cases the loan to value ratio is going to need to be greater than 80%, then an insured mortgage may be the right option for you.
In order to be able to understand and effectively work through all the requirements of both the mortgage insurance companies and the mortgage lenders that provide insured mortgages, we suggest that you give us a call a let a member of our team go through everything with you.