What is mortgage loan insurance?

Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from .50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance. The Canada Mortgage and Housing Corporation provides mortgage loan insurance to lenders for home buyers with a down payment of less than 20%, to as low as 5%. However, this is not to protect the buyer, it is used to protect the lender. CMHC insurance guarantees the bank or credit union that it will not lose money on this high ratio mortgage. It is the lender that technically pays this insurance premium, though they will pass the cost on to you. Many lenders will add this amount into the mortgage, so that you will not need to pay it immediately. so how much will CMHC insurance cost you? Here are the three tiers for employed people with verifiable income:

• • 15% to less than 20% down payment requires a standard insurance premium of 1.75%
• • 10% to less than 15% down payment requires a standard insurance premium of 2.00%
• • 5% to less than 10% down payment requires a standard insurance premium of 2.75%

There is also a premium paid on mortgages that are amortized over more than 25 years. Over 25 years, up to and including 30 years has an extended amortization surcharge of 0.2%