There are various types of mortgages that Canadian homebuyers have access to when they decide to purchase a property, one of which is the Insured Mortgage (also known as a High-Ratio Mortgage).
When a homebuyer makes a down-payment that is less than 20%, they are subject to an insured mortgage which obliges them to purchase loan insurance. The loan insurance premium is either paid in a single lump sum or is added to their mortgage and included in their monthly payments.
Due to the lower down-payment amount, the borrower is considered a higher risk for the lender. In order to mitigate the risk, loan insurance is made a requirement in order to protect the lender in case the borrower defaults on their mortgage.
The loan insurance premium is determined by both the home’s purchase price as well as the size of the down-payment that was made. The higher the percentage of the total house price/value borrowed, the higher percentage you will pay in insurance premiums. Fortunately, the CMHC (Canada Mortgage and Housing Corporation) provides an easy-to-use calculator for determining your premium.
An insured mortgage is one of the most effective solutions for Canadian homebuyers who do not have a 20% down-payment on-hand. It allows borrowers to take advantage of a more flexible financing option and to purchase a home with only a 5% down-payment. With an insured mortgage, borrowers also have the ability to transfer their mortgage insurance from one home to another, anywhere in Canada.
To get a more detailed understanding of an insured mortgage and to see if you are eligible to apply for this type of loan, contact our mortgage professionals today!