Insured Mortgages in Alberta
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an insured loan is required when you put less than 20% down payment. If you put 20% or more, your loan becomes conventional.
WHAT IS MORTGAGE INSURANCE?
Mortgage loan insurance helps protects lenders against mortgage default, and enables buyers to purchase homes with a minimum down payment of 5%.
High ratio (insured) mortgages must be insured by the Canada Mortgage and Housing Corporation (CMHC) or another company approved by the lender, such as Sagen or Canada Guaranty. The insurance will protect the bank in the event of a default on the loan.
The insurer will charge a fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical fees range from 1.00% to 3.50% of the principal amount of your mortgage. This amount is typically added to the principal portion of your mortgage. Mortgage insurance is for the benefit of the bank, not the buyer, though the buyer pays the premium. If the borrower defaults, the proceeds of the insurance will be paid to the lender, not the borrower.
Mortgages with less than 20% down payment are seen as riskier than those with a substantial down payment. Without mortgage default insurance, the lender wouldn't consider taking on these 'riskier' mortgages — so it helps them offer more mortgages to more people. In fact, you can possibly get a mortgage with only a 5% down payment with this type of insurance.
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