What You Need to Know About Mortgage Insurance
Buying a home is one of the most important financial decisions that anyone can make. With the strong housing market in Canada, many buyers are interested in making an investment in a home. When buying a home, mortgage insurance is something that a lot of buyers have to deal with. As a general rule, the less money you put down on a home, the more risk the bank is taking on.
Here’s how mortgage insurance can help you buy your dream home:
Who Needs Mortgage Insurance?
CMHC Mortgage Insurance is something that protects lenders in case of default. Without this insurance, all buyers would require at least twenty percent of the purchase price in cash when buying a home. Today, a very small percentage of buyers have this amount for a down payment. As home prices continue to increase, it is becoming more difficult than ever before to save up for a down payment on a new home.
Mortgage insurance is required for buyers who have a down payment of less than twenty percent. Mortgage insurance generally costs between two and four percent of the purchase price of the home per year. This may seem like a lot of money to spend every month. However, mortgage insurance allows people to own a home without having to save up a huge down payment. With the rapid appreciation of housing prices, now is a great time to find a home and get a mortgage.
Mortgage Options
When buying a home, one of the biggest obstacles to get through is getting approval on a mortgage. Some lenders want their borrowers to have an extensive credit history. As a general rule, the higher your credit score, the more options that you have to work with on your mortgage. There are some loan options that allow you to put as little as five percent of the purchase price down on the home.
However, with a down payment that small, your monthly mortgage payment is going to be much higher. Not only is the mortgage insurance going to be four percent per year, but the total principal owed is much higher as well. If you want to reduce your monthly mortgage payment, putting down a substantial down payment is key. Now is the time for you to start saving up in order to make a considerable down payment on your future home.
In short, CMHC Mortgage Loan Insurance is a program designed to help buyers realize their dreams of homeownership, as well as protect the lenders that are lending money to risky borrowers.
If you are building a home, make sure to ask your builder about different financing options for your home. Builders often have vast experience when it comes to finding a quality loan for clients.
