Mortgage default insurance is a type of insurance that protects a lender in the event that a borrower defaults on a mortgage loan. In Canada, the majority of homebuyers must purchase mortgage default insurance if they are putting down less than 20% of the purchase price of a home. This insurance is designed to protect the lender in case the borrower is unable to make their payments and the home is foreclosed upon.
Mortgage default insurance is also known as CMHC insurance, which stands for Canada Mortgage and Housing Corporation. CMHC is a government-run organization that provides mortgage insurance to lenders. If a borrower defaults on their loan, CMHC will pay out the balance of the loan to the lender. This insurance allows lenders to offer lower down payment mortgages, which makes it easier for Canadians to purchase a home.
Mortgage default insurance premiums are typically paid by the borrower at the time of the loan. The exact amount of the premium will vary depending on the size of the loan, the mortgage term, and the down payment amount. Generally, the lower the down payment, the higher the premium.
Mortgage default insurance is not required for all homebuyers. If you are putting down more than 20% of the purchase price of a home, you may be exempt from buying mortgage default insurance. In some cases, lenders may also waive the requirement for mortgage default insurance if the borrower has a solid credit score and sufficient income to make the loan payments.
Understanding mortgage default insurance is important for anyone looking to purchase a home in Canada. It is important to remember that mortgage default insurance is there to protect the lender, not the borrower. If you default on your loan, the lender will still be able to recoup their funds thanks to the insurance. It is important to understand the premiums associated with mortgage default insurance and to make sure you can afford the payments before committing to a loan.