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January 26, 2017

An Insured Mortgage is a mortgage covered by Mortgage Default Insurance.

This insurance is purchased to protect the lender (not the borrower) against any losses related to borrower default and foreclosure. 

Currently there are three insurers in Canada: CMHC, Canada Guaranty and Genworth.

Each of these insurers offer two types of insurance coverage:

Transactional Insurance, referred to as a High Ratio Mortgage. This is added to mortgages with Loan to Values greater than 80% (sometimes added to lower LTV’s in unique situations).  This is the insurance that most consumers are aware of.  Borrowers are responsible for paying the insurance premium and it is typically added to the mortgage balance at the time their mortgage is advanced.  The premium is tiered and reduces as the client puts more down. 

You can see a full breakdown of the premiums here: http://www.canadaguaranty.ca/downloads/CG_Premium-Rates_EN_Nov-30-2016.pdf

Note: These premiums are set to increase March 17th, 2017

Portfolio Insurance or Bulk Insurance is added to mortgages with Loan to Values less than 80%.  Most often borrowers are not even aware that this coverage has been purchased as the premium is paid for by the lender or bank.  Up until recently, Monoline lenders have used this type of coverage on all the mortgages they fund. Big Banks also use this insurance to a lesser extent. 

Since default insurance is added to help protect the lender, mortgages that have been insured are viewed as more secure and therefore borrowers often receive lower rates. 

Note:  Recent Government changes has resulted in greater restrictions on what kinds of mortgages can be insured. 

You can read more here: Confused by your Rate Options? 

Impact on Premium Increase

Loan-to-Value New Premium Old Premium

Up to and including 65%

0.60%

0.60%

Up to and including 75%

1.70%

0.75%

Up to and including 80%

2.40%

1.25%

Up to and including 85%

2.80%

1.80%

Up to and including 90%

3.10%

2.40%

Up to and including 95%

4.00%

3.60%

90.01% to 95% —
Non-Traditional Down Payment**

4.50%

3.85%

 

 

 

 

 

 

 

 

 

 

 

Example on a $400,000 Purchase Price with a 5% down payment:

  Old Premium New Premium
Purchase Price $400,000 $400,000
Down Payment $20,000 $20,000
Total $380,000 $380,000
Premium $13,680 (3.60%) $15,200 (4.00%)
Final Mortgage $393,680 $395,200

 

 

 

 

 

 

 

The difference in the Premium would cost you an extra $1,520 initially but since this amount is also added to your mortgage and then amortized with interest it will actually cost you a bit more over the life of your mortgage. 

If you are considering buying a home soon and looking to save some money, having your application submitted before March 17th, 2017 could be a wise decision.