Mortgage default insurance, also known as CMHC insurance, is a type of insurance that protects lenders in the event of borrower default. It is required by most Canadian banks and lenders when a borrower has a down payment of less than 20% of the purchase price of the home. While not required for all mortgages, it is an important safety net for lenders, and it is important for homeowners to understand it.
Mortgage default insurance is provided by the Canada Mortgage and Housing Corporation (CMHC). It is a type of insurance that is designed to protect lenders in the event of borrower default. It is required by most Canadian banks and lenders when a borrower has a down payment of less than 20% of the purchase price of the home. The insurance covers the lender in the event that the borrower is unable to make their mortgage payments and defaults on the loan.
The cost of mortgage default insurance is added to the mortgage and is paid for by the borrower. The amount varies depending on the size of the down payment and the amount of the loan. It is typically between 0.5% and 4.0% of the loan amount. For example, if you are taking out a $500,000 mortgage and you have a 10% down payment, then the cost of the mortgage default insurance would be approximately $15,000.
Mortgage default insurance is an important safety net for lenders. It helps to ensure that they are protected in the event that the borrower is unable to make their payments and defaults on the loan. It also helps to ensure that lenders are able to offer mortgages to borrowers with smaller down payments, as it helps to protect them from potential losses.
Homeowners should be aware of the costs associated with mortgage default insurance, as well as the potential risks. While it is a necessary safety net for lenders, it can be a costly addition to a mortgage and it is important to understand the implications. It is also important to understand that the insurance does not guarantee repayment of the loan, and it is the borrower’s responsibility to make their payments on time.
Mortgage default insurance is an important consideration for any Canadian homeowner looking to purchase a home. It is important to understand the implications, costs, and risks associated with the insurance, and to take the time to shop around for the best deal. By doing so, homeowners can save money and ensure that they are protected in the event of borrower default.
