Everything you need to know about Mortgage Insurance
Thinking of buying a home? If you want to buy a home with a down payment of less than 20%, you’ll need mortgage loan insurance. This insurance protects your lender in case you can’t make your payments.
There are three companies who offer this insurance in Canada. CMHC, Genworth Financial, and Canada Guaranty. CMHC is the most known, so some refer to this insurance as CMHC Insurance.
With this insurance it allows you to buy a property with less down while still ensuring you get a reasonable rate.
These rates are called “High Ratio” mortgages. (currently around 1.3% 5yr variable) The rates are among the lowest in the market, but remember, you still have to pay approximately 2.8%-4% extra in insurance and have specific conditions you must meet to qualify.
To qualify for this insurance, you must:
• The maximum amortization for insured mortgages is 25 years. • If the purchase price is between $500,000 - $999,999 a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% of the remaining amount. • Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% down payment is required on these homes.
With changes in effect as at July 1st, 2020 (in response to the economic downturn) To be eligible for CMHC insurance coverage after July 1st, borrows must:
• Have a Gross Debt Service (GDS) ratio of less than 35 • Have a Total Debt Service (TDS) ratio of less than 42 • Have a credit score of at least 680 • Must not borrow money for their down payment
Unlike closing costs, like legal fees and land transfer tax, this insurance does not require a lump sum cash outlay at the time you purchase your home. This premium is typically added to your mortgage amount and paid off over the life of your loan. It is calculated as a percentage of the mortgage and is based on the size of your down payment.
• Up to and including 85% (15% down payment) = 2.80% • Up to and including 90% (10% down payment) = 3.10% • Up to and including 95% (5% down payment) = 4.00%
To minimize your cost, the only way is to increase your down payment. If you reach 20%, you don’t need it at all.
Link to the Program Directly: https://www.placetocallhome.ca/.../first-time-homebuyer...
First Time Home Buyers Update:
First-time homebuyers in three of Canada’s most expensive housing markets will soon have an easier time qualifying for the First-Time Home Buyer Incentive (FTHBI). This program is run by CMHC and is expected to come into effect in spring 2021.
An overview of the changes:
• First-time buyers will be able to purchase a home up to 4.5 times their household income vs. four times their income currently • They can participate if their household income is $150,000 or less vs. $120,000 currently. • With a minimum down payment, the maximum purchase price that will qualify under the program rises to about $722,000 in those three markets vs. approx. $505,000 currently nationwide.
Depending on where you live or want to, this program may or may not even help you and your purchasing power. Given that these most expensive markets have average house price above these numbers, it suggests that the government is trying to help, but may not be enough.
To learn more about your situation and how this may affect you or for anything mortgages, I’m just a call away. (416) 450-3171