Why Choose Mortgage Insurance?
Thursday, November 6, 2014
Why you May Need Mortgage Insurance
Ready to put down roots in your own home? According to the Alberta Real Estate Association, the average price of a home in Alberta in September 2014 was $399,810 – up 4.9% over a year ago. That brings the required down payment of 20% close to $80,000.
If, like many residents of Alberta, you are unable to keep up with the recent surges in housing value, and a 20% down payment is too rich for your pockets, you may want to consider mortgage insurance. Mortgage loan insurance helps millions of Canadians move past the sticker shock, and closer to their dream of home ownership.
What is mortgage loan insurance?
Not to be confused with mortgage life insurance, which covers the balance of your mortgage in the event of your untimely death, mortgage insurance reduces the down payment required for a home purchase to as low as 5%. Simply put, mortgage loan insurance reimburses your lender in the event that you are not able to make your mortgage payments.
Like any insurance, you need to pay premiums - in one lump sum at the time of closing on your home or as part of your monthly mortgage payments. The larger your down payment is, the lower your premiums will be. The amortization length of your mortgage also affects the premium.
Why do I need mortgage insurance?
Mortgage insurance offers aspiring homeowners many advantages including:
- An accelerated path to homeownership. Mortgage insurance allows you to quit paying rent and enter the home ownership game faster with a lower down payment.
- Immediate equity. As soon as you buy a home, you start building equity in it. The longer you stay in your home, the more it should increase in value. By increasing in value, your home may also help you move up to an even better home when you sell it. The key is starting sooner than later.
- Better fit for your budget. With the high real estate prices in areas such as Calgary and Edmonton, a 20% down payment may be unattainable for some. Mortgage insurance reduces this to 5% making it more realistic for you to become a homeowner.
How do I qualify?
In order to qualify for mortgage insurance, you must present a down payment of 5% of the home’s purchase price, consisting of money you have saved or from your RRSPs. The funds can also be a gift from a family member. The home you wish to purchase must be on Canadian soil.
Your lender will run a credit check and will want proof of income, your total monthly housing costs - which should not be more than 32% of your gross household income, and your total debt amount including car loans and credit card balances – which should not be more than 40% of your gross household income.
Where can I get it?
Mortgage Insurance is available through the Canada Mortgage and Housing Corporation (CMHC).
Whatever your dreams for the future, mortgage insurance can help you get that stylish condo in downtown Calgary or that cozy townhouse in Lethbridge that is realistically wihthin your means much sooner than you thought possible.