Canada Offers Mortgage Insurance, Should You Go For It?
The Canadian housing finance system has made it possible for you to buy a residence in Canada even if you are not able to save enough for the down payment. You are able to get a loan with a 5% down payment on your property, but will be able to get a 20% interest rate. What makes this possible? You are able to get such a great deal because they require the purchase of loan insurance for the amount borrowed. Risk of the loan defaulting is reduced for the broker and the buyer is able to purchase a property without making the entire down payment.
Who Qualifies?
The buyer must qualify for loan insurance, so not everyone will be able to participate. The property must be in Canada to meet the first requirement. The buyer must make a down payment of at least 5% on single-family and two-unit homes and 10% on three- or four-unit homes. The money down must come from your own recourses, but a contribution from an immediate relative is acceptable. Another qualifier is that 32% of your gross household earnings is comprised of your principle, interest, property taxes, heat bill, the annual site lease in case of household tenure, and 50% of applicable condominium fees. An additional qualifier for mortgage insurance is your debt load should not be more than 40% of your gross household income. The amount of closing costs and fees can also play a part in deciding your eligibility for mortgage insurance.
How much does it cost?
To obtain mortgage insurance, the broker pays an insurance premium. Yes, the mortgage company is the one who pays the premium, but believe me; they will pass the cost on to you. Does loan insurance cost a lot? It depends on who you talk to. There is a direct connection between the amount borrowed and the cost of mortgage insurance. Your insurance gets higher the more money you are lended. So, for buyers who set aside more will be rewarded more. Buyers can even pay the insurance premium in different ways. The insurance premiums can be paid monthly as a part of the buyers mortgage payments or up front in a large lump sum. If you default on your mortgage, the loan insurance does not keep you safe. The broker is just insured on the borrowed loan. On the bright side, you got to acquire a home with little money down and a good interest rate.
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