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Posts Tagged ‘CMHC’

Insurance – Mortgage Default Insurance

Wednesday, March 31st, 2010

There are two types of Insurance to learn about relating to mortgages. The first one I am going to discuss is Mortgage Default Insurance. (also known as Mortgage Loan Insurance) This insurance is used by banks to protect themselves if you default (do not pay) on your mortgage payments.

The most common provider of Mortgage Default Insurance is “CMHC” The Canadian Mortgage and Housing Corporation. This is a government run company that supplies the Lender, usually at your cost, insurance on your mortgage in case you default. Default insurance is the “vehicle” that allows you to borrow up to 95% of the value in your home. Without access to default insurance, a lender will not go higher than 80% loan to value.

Other insurance companies in Canada that provide Mortgage Default Insurance include Genworth Financial, and AIG

Once a lender approves your mortgage; they then will submit it to an insurance company for acceptance. If the insurance company will not support the deal then it is likely the lender will turn it down.

Mortgage Insurance premiums are calculated on the total loan amount, and range anywhere from 0.5% to 6%.

On a $200,000 home with 5% down a typical CMHC premium would be 2.75%

Purchase Price $200,000

Downpayment $10,000 (5%)

Mortgage $190,000

CMHC Premium $5225

Total Mortgage Owing $195,225

You can save paying the Mortgage Default Insurance premium if you have 20% or more as a downpayment.

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Self Employed? Changes to CHMC Mortgage Insurance

Monday, March 8th, 2010

Policy Changes to CMHC Self-Employed

CMHC is also announcing policy changes to the CMHC Self-Employed Product Without Traditional Third Party Validation of Income. Effective April 9, 2010, self-employed borrowers with more than 3 years in the same business and commissioned-income borrowers will be required to confirm their income and will not be eligible for the Self-Employed Product Without Traditional Third Party Validation of Income. This product is intended for a small portion of borrowers who find it very difficult to document income – in particular, recently self-employed borrowers. For the majority of self-employed borrowers, income validation is readily available through financial statements, contracts, T4s and other third party income validations. The changes will ensure that self-employed borrowers with third party income validation will benefit from a lower premium. Furthermore, the maximum loan-to-value ratio available under the CMHC Self-Employed Product Without Traditional Third Party Validation of Income will be reduced from 95% to 90% for purchase transactions and from 90% to 85% for refinance.

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