When Mortgage Insurance Is Required

As a mortgage broker, I understand the importance of navigating the intricacies of homeownership. One aspect that often raises questions among homebuyers is mortgage insurance. In this blog, I will provide you with valuable insights into when mortgage insurance is required in Alberta. Understanding this requirement will help you make informed decisions when pursuing your dream of homeownership.

High-Ratio Mortgages and Mortgage Insurance

In Alberta, mortgage insurance is primarily associated with high-ratio mortgages. A high-ratio mortgage is one where the down payment is less than 20% of the purchase price or appraised value of the property, whichever is lower. When obtaining a high-ratio mortgage, mortgage insurance is typically required to protect the lender against default.

Canada Mortgage and Housing Corporation (CMHC) Insurance

In Canada, the primary provider of mortgage insurance is the Canada Mortgage and Housing Corporation (CMHC). As an insurer, CMHC offers insurance to approved lenders, such as banks and credit unions, allowing them to provide high-ratio mortgages to borrowers. CMHC insurance is available for both new home purchases and refinancing existing mortgages.

Mortgage Insurance Premiums

Mortgage insurance premiums are an additional cost that borrowers must consider when obtaining a high-ratio mortgage. The premium amount is based on the percentage of the loan-to-value (LTV) ratio, which is the loan amount divided by the appraised value of the property. In Alberta, CMHC insurance premiums range from 0.60% to 4.00% of the mortgage amount, depending on the LTV ratio.

Alternatives to CMHC Insurance

While CMHC is the most well-known mortgage insurer, there are also other mortgage insurers available in Alberta, such as Genworth Financial Canada and Canada Guaranty. These insurers offer similar mortgage insurance products and premiums. It’s essential to work with a mortgage broker who can provide you with access to a range of insurance options and help you find the most suitable one for your needs.

Conventional Mortgages and Mortgage Insurance

Unlike high-ratio mortgages, conventional mortgages in Alberta do not typically require mortgage insurance when the down payment is equal to or exceeds 20% of the purchase price or appraised value of the property. This exemption from mortgage insurance can result in significant cost savings for homeowners.

Mortgage Insurance and Homebuying Benefits

While mortgage insurance adds an extra cost to your monthly mortgage payments, it also offers several benefits. For homebuyers with a smaller down payment, mortgage insurance allows access to homeownership sooner, as it lowers the minimum down payment requirement. Additionally, mortgage insurance enables lenders to offer competitive interest rates to borrowers with high-ratio mortgages.

As an Alberta-based mortgage broker, I want to ensure that you have a clear understanding of when mortgage insurance is required. If you are pursuing a high-ratio mortgage with a down payment less than 20%, mortgage insurance is necessary to protect the lender. By exploring options such as CMHC insurance and alternatives, you can make an informed decision that aligns with your financial goals.

Remember, mortgage insurance offers advantages, such as increased accessibility to homeownership and competitive interest rates. However, it’s essential to carefully consider the additional cost of mortgage insurance premiums when planning your budget. I am here to assist you every step of the way, helping you navigate the complexities of mortgage insurance and finding the best solution for your home financing needs in Alberta.

– Duane Springsteel