mortgage insurance

What is Mortgage Insurance?

Mortgage Insurance is an insurance policy taken out on certain mortgage loans to protect the lender in case the borrower defaults on payments

If the borrower defaults, the mortgage insurance protects the mortgage lender against loss. Mortgage insurance is sometimes confused with Mortgage life insurance, but the 2 are not the same type of policy. Mortgage life insurance pays off the mortgage in the event of the death of the borrower.

Mortgage insurance is most often seen in mortgages with lower down payments, and in Canada, is usually required for mortgages in which the down payment is less than 20% The 3 providers of mortgage insurance in Canada are the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada and AIG.

As with other insurance policies, there is a premium that must be paid and is charged to the lender, who will, in turn, pass the cost of the premium to the borrower. The premium is determined based on a percentage of the loan and the size of the down payment, where a lower down payment means a higher premium. The premium can be incorporated into the mortgage as part of the monthly payment or paid up front.

There are other qualifications for mortgage insurance, such as restrictions on the source of the down payment and percentage limits of the Principal, Interest, Property Taxes, Heating (PITH) to gross household income.