Insurance
Mortgage Loan Insurance
As a first-time home buyer, chances are, you're not walking into your deal
with a huge down payment. As you may have already discovered in other
areas of the site, you can purchase a home with as little as 10% down,
or even a 5% down payment if you qualify with CMHC's First Home Loan
Insurance.
Bottom line, if your down payment is less than 25% of the value of the
home, you must purchase mortgage loan insurance. In Canada, most lenders
are legally required to insure these high risk mortgages. This insurance
means that if you default on your mortgage, your lender receives their
money from the Canadian Mortgage and Housing Corporation (CMHC) or other
insurer. And it's coverage like this that gives most lenders the confidence
to finance up to 90% of your purchase.
What Does it Cost?
The actual premium of the loan ranges between 0.5% and 3%, and is based
on the size of the loan and value of your home. You can make your premium
in two ways: as a lump sum when you make your purchase or as part of your
monthly mortgage payments. But keep in mind, if you're paying it monthly,
you're also paying interest on the premium!
Of course, there are always additional fees:
(If you provide your own appraisal, the fee drops to $75, but neither
cost covers the actual inspection or appraisal service.)
Application Fee $25
Appraisal Fee $235
First Home Loan Insurance
This is a special product for first-time purchasers. It allows you to
mortgage up to 95% of the value of your home. Any type of home is eligible,
as long as it meets the following criteria:
- The home must be occupied by you and be in Canada.
- You can't have owned a home in Canada during the past five years. (If there is more than one owner, only one has to meet this criterion.)
- All housing payments - mortgage principal and interest, property taxes, heating (and if applicable, 50% of your condominium fees) can't total to more than 32% of your gross household income, or be more than 40% of your entire debt load.
