subject: Canada Home Insurance Mortgage [print this page] Canada Home Insurance Mortgage
Nowadays, most people buy homes with the help of mortgages or home loans granted by lenders. This is because due to the increase in expenses it is very difficult for families to save money to buy a home for themselves. Mortgages allow these people to purchase homes even when they lack the necessary funds. However, lending money to people for purchasing homes is risky for the lender, keeping in mind the recent financial meltdown due to subprime mortgage in the US.
Due to the high risk involved in mortgages, many lenders prefer to insure their mortgage loans so as to protect themselves from losing money when the borrower defaults.
In Canada home insurance mortgage means that in a situation where the borrower defaults on the loan due to financial hardships, the insurance on the mortgage ensures that lender recovers the outstanding principal along with the other expenses from the sale of the property and the insurance money.
When a borrower gets a loan worth more than 80% of the value of the home from a lender with a federal license, according to the Canadian regulations the lender has to insure the mortgage. This is because insuring the mortgage allows the bank to prevent any losses in case of a default by the borrower. Canada home insurance mortgage also allows the government to maintain stability in their economic system.
Since mortgage insurance protects the lender from loss, people normally assume that it will be paid for by the lender. However, mortgage insurance is actually paid for by the borrower. Initially the insurance premium is paid by the lender; however, it is gradually paid back by the borrower. It may be incorporated into the final interest rate or may be paid in a lump sum amount initially. It may also be sometimes covered in the monthly mortgage bill as a separate amount.
The mortgage insurance is used as a hedge to protect the lender in the event that the lender recovers lesser amount than the fair market value of the property. Also, when the loaned amount is high, the insurance is also high. Thus, the higher the money loaned, the higher will be the insurance. Also, when a borrower pays a lower down payment for the mortgage, the insurance premium is higher.
However, this leads to a higher monthly bill for the borrower, Canada home insurance mortgage makes it possible for the government to protect its lenders and its financial system from collapsing when too many borrowers default on their loans.
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