An insured mortgage is one that is covered by Mortgage Default Insurance, which is purchased to protect the lender against any losses that stem from the borrower, including default and foreclosure. This insurance does not cover the borrower and there are three insurers in Canada who provide this type of coverage, including Canada Guaranty, CMHC and Genworth Financial.
Transactional insurance consists of a one-time premium that is applied to those mortgages whose Loan to Values is greater than 80% and is also referred to as a high ratio mortgage. Most consumers are aware of this insurance because it is the borrower’s responsibility to pay the insurance premium, which is typically added to the mortgage balance whenever the mortgage is granted. As the borrower puts more money down, the premium will become lower because it is tiered and will reduce.
Portfolio insurance applies to mortgages with Loan to Values less than 80% and many borrowers are not aware that this coverage is part of their mortgage or that it has been purchased because it is paid for by the lender or the bank. This is also referred to as bulk insurance and most mortgage finance corporations use this particular type of coverage on all the mortgages they fund and buy this type of insurance so they can offer lower mortgage rates. Big banks also use this type of insurance but to a lesser extent.
Default insurance protects the lender and is added for their benefit, so any mortgage that has been insured will be viewed as more secure, and for this reason, borrowers will generally receive lower rates. Of course, government changes will affect the types of insurance and can result in restrictions on the kinds of mortgages that can be insured. Down payments that are between the minimum 5% and 19% must have mortgage default insurance because it’s mandatory and will protect the lender if ever the borrower stops making payments or defaults on their mortgage loan. While this will cost the homebuyer a certain percentage of their mortgage amount, it allows many Canadians to purchase a home in today’s competitive real estate market and without it, this would be very difficult to do if not impossible. Mortgage rates would also be a lot higher because there would be a greater risk of default, which is why this insurance is implemented. The protection that comes with it allows lenders to offer better rates.
Mortgage Makers in Edmonton can provide you with a lot more information regarding this aspect and we offer different services like a second home mortgage and provide excellent rates, so if you want to work with the best mortgage brokers in all of Edmonton, give us a call today!