subject: Canada Offers Mortgage Insurance, Must You Go For It? [print this page] The Canadian housing finance system makes it possible for you to purchase a property in Canada even if you are unable to save enough for the money down. Better yet, it allows people to acquire a loan with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment.
How can this be? You are able to get such a good deal because they require the purchase of mortgage insurance for the amount borrowed. This reduces risk from the loan for the broker and enables you to purchase a residence and never have to front the whole down payment.
What are the Requirements?
The buyer must qualify for loan insurance, so not everyone will be able to participate.
To qualify, the home, of course, must be in Canada. The purchaser must make a down payment of at least 5% on single-family and two-unit residences and 10% on three- or four-unit homes. The money down must come from your own recourses, but a contribution from an immediate relative is acceptable.
Another qualifier is that 32% of your gross household income is comprised of your principle, interest, property taxes, heat bill, the annual site lease in case of household tenure, and 50% of applicable condominium fees.
Also, to qualify for the mortgage insurance, your liability load should not be more than 40% of your gross household earnings.
Other factors that can determine if you qualify for loan insurance or not are closing costs and fees.
So, what's the cost?
The mortgage company pays the insurance premium to obtain loan insurance. The expense will get passed on to you, but it is the lender who pays the initial insurance premium.
Will the loan insurance be a lot to cover? It depends on who you talk to. The amount of the mortgage is directly correlated with the price of the insurance. Your insurance gets higher the more money you are lended. This rewards buyers who set aside to put money down.
Buyers can even pay the insurance premium in diverse ways. The insurance premiums can be paid monthly as a part of the buyers mortgage payments or up front in a large lump sum.
You are not safe just because you purchased mortgage insurance if your loan is defaulted. It just insures the lender on the money you borrowed. On the bright side, you got to purchase a property with little money down and a good interest rate.
Save on loan insurance by going to www.infoprimes.com.
by: Cecile F. Gamache
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