Home Purchase Made Easier With Default Mortgage Insurance

Owning a home is a national dream not only in Canada but anywhere else in the world.

The biggest obstacle to buying a home in Canada was finding the down payment. By law banks can only lend you 75%, very recently this was increased to 80%. The average British Columbia home is $430,000.00 and 20% down payment will be $86,000.00

It is possible though to buy a home with zero down payment by purchasing default mortgage insurance coverage for high ratio mortgages.

In Canada there are two major entities that provide this insurance coverage: Canada Mortgage and Housing Corporation, a Government of Canada Crown Corporation and Genworth Financial Mortgage Insurance Company of Canada, a public company.

Provided that you meet certain criteria (that is, you have an excellent credit rating, a great job, a good income), you should be able to qualify to purchase the default insurance coverage. This will allow the bank to lend you up to 100% of the market value of your home. In case you can no longer service your mortgage, the bank will be compensated by the insurance provider for any loss incurred as a result of the default. You are off the hook.

Default insurance providers can insure your mortgage with a 20% down payment up to zero down payment. This does not come free though. You will have to pay a one-time premium of between 0.5% to 3.1% of the amount of the mortgage. Imagine 3.1% on a $430,000.00 mortgage is $13,330.00. The good news is that bank may blend this premium into your mortgage amount and spread the payment over 25 years or so.

The traditional amortization period (that is the number of years to spread your repayment of principal and interest) is 25 years. Recently default mortgage insurance company has option to extend the amortization period up to 40 years. This simply reduces your monthly mortgage payment to a more affordable level but you have a longer number of years to repay your mortgage.

By minimising your monthly mortgage payment, default mortgage insurance provider is helping you to purchase a home much sooner. Note that you can always reduce the amortization period at the end of the mortgage term and make a larger monthly payment if you can afford it later in the years.