You’re likely familiar with the concept of mortgage insurance. But for those just starting out, let me explain what it is and why it’s important.

In short, mortgage insurance is a type of insurance that protects the lender in the event that a borrower defaults on their mortgage. This is particularly important in cases where the borrower has made a down payment of less than 20% of the purchase price of the property.

In Canada, mortgage insurance is typically required by the lender when the borrower has a down payment of less than 20% of the purchase price of the property. The mortgage insurance premium is typically added to the mortgage and is included in the borrower’s monthly mortgage payments.

Why is Mortgage Insurance Important?

The main reason is that it helps to reduce the risk for the lender. When a borrower defaults on their mortgage, the lender can be left with a property that is worth less than the outstanding mortgage balance. Mortgage insurance helps to protect the lender from this loss.

Who Provides Mortgage Insurance?

In Toronto, there are two main providers of mortgage insurance: Canada Mortgage and Housing Corporation (CMHC) and Genworth Canada. Both of these providers offer similar types of insurance, but there are some differences between them.

For example, CMHC is a government-owned corporation, while Genworth Canada is a private company. This means that the premiums for CMHC insurance may be slightly lower than those for Genworth Canada insurance.

Additionally, CMHC has a maximum insurable mortgage amount of $1,000,000, while Genworth Canada’s is $2,000,000. This is important to keep in mind if you’re planning on buying a property that is more expensive than $1,000,000.

A Few Examples 

• A homebuyer named John who is purchasing a property for $1,000,000 in Toronto. He has made a down payment of $200,000, which is 20% of the purchase price. Since he has made a down payment of 20% or more, he is not required to purchase mortgage insurance.
• On the other hand, let’s consider another homebuyer named Sarah who is purchasing a property for $1,000,000 in Toronto. She has made a down payment of $180,000, which is 18% of the purchase price. Since she has made a down payment of less than 20%, she is required to purchase mortgage insurance. The premium for this insurance would be added to her mortgage and included in her monthly mortgage payments.

It’s important to note that the cost of mortgage insurance can vary depending on a number of factors, including the size of the down payment, the purchase price of the property, and the lender’s guidelines. As a general rule, the larger the down payment, the lower the cost of the insurance.

In summary, mortgage insurance is a type of insurance that protects the lender in the event that a borrower defaults on their mortgage. In Toronto, it is typically required by the lender when the borrower has made a down payment of less than 20% of the purchase price of the property. 

It’s important to understand the requirements and costs associated with mortgage insurance, especially if you’re planning on buying a property in the near future.