In Canada, mortgage default insurance is a requirement for homebuyers who have a down payment of less than 20% of the home’s purchase price. This insurance protects the lender in case the borrower defaults on their mortgage payments.
There are currently 3 Mortgage Default Insurers in Canada:
They are all very similar, with very close premiums on the insurance policy that gets attached to your purchase.
These companies try to allow you to achieve a low down payment of 5%. However, keep in mind the tier-based costs associated with each level of additional down payment. Also, keep in mind that these companies are not applicable when you put more than 20% down on your purchase. And refinancing doesn’t fall into this category either.
So what are these insurers, and how do these insurers operate in the mortgage industry?
Firstly, they communicate with lenders only – so don’t try to call them about your decline on your mortgage, as they cannot talk to you about it. In certain circumstances, the broker could try and call and get info, but the main idea here is that lenders submit information to an insurer for your deal to be approved. The lender is the one who looks at your file and assumes it can be insured, based on the 3 factors of your approval.
Secondly, these insurers are approving two things.
- Covenant – this is you.
- How well do you pay your bills (credit)?
- How much down (down payment)?
- What is your income like?
- A strong covenant can borrow mortgage money and purchase with little down.
- Title – this is the house you’re buying, the property they will insure.
- How well does it market?
- Is there marketability after the fact if you “give back the keys”?
- Does the property have insurance claims and/or other claims against it?
These are just a few examples of the questions asked when approving, but no matter the question, they usually fall into these two categories – Covenant and Title.
