Insured, Insurable and Uninsurable -What's the difference?
Insured
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Down payment is between 5% to 19.99%
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Property must be under $1M
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25 year amortization
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Borrower pays insurance premium
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Must comply with the lender AND insurer guidelines (CMHC, Genworth or Canada Guaranty)
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Insurance premium is topped onto the mortgage
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Lower mortgage rates, as borrower pays insurance premium
Why is there insurance premium?
When a borrower has down payment of 5% to 19.99% they are required to pay an insurance premium. Please note that the insurance premium is not paid upfront, but rather topped onto the mortgage. The reason borrowers with less than 20% down payment are required to pay an insurance premium is because they have "less skin in the game." This puts lenders at a higher risk, as the rate of default could increase. Mortgage default insurance protects the lenders, as the risk of default is passed onto the insurers. The biggest benefit of mortgage default insurance is it allows borrowers with less than 20% down payment entry into the real estate market!
The three major insurers in Canada for mortgage default insurance are: Canada Guaranty, CMHC, and Genworth.
Below is the current mortgage insurance loan cost based on loan-to-value requirements (last update January 2019). For more information, please click here.
TOPIC
Mortgage Types
AUTHOR
Jessica Kuan
Insurable
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Down payment 20% +
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Property must be under $1M
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25 year amortization
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Lender pays the insurance premium
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Must comply with the lender AND insurer guidelines (CMHC, Genworth or Canada Guaranty)
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Best mortgage rates
Insurable mortgages meet insurer guidelines, however, clients are putting down payment of 20% or more towards their property; as well, the life of the mortgage (amortization) does not exceed 25 years. The best part? You get best rates, and the lender pays the insurance premium -- not the borrower!
Uninsurable
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Down payment 20% +
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Property is over $1M
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30 year amortization
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No insurance premium!
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Must comply with lender guidelines
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Slightly higher rates, but lower monthly payments
Obtaining a mortgage with 30 year amortization can be super beneficial! Even though the rates are usually slightly higher than insurable rates, your monthly payments are amortized over a longer period of time (ex: 30 years instead of 25 years). This means that your monthly payments are lower, allowing you to debt service more and potentially obtain a higher loan!