What is Mortgage Loan Insurance?

Mortgage loan insurance is required by lenders when homebuyers make a down payment of less than 20% of the purchase price. The mortgage insurance protects the lenders in case of default but allows homebuyers to get in with a lower down payment. When you are applying for a mortgage and planning to put less than 20% down, you will have to be approved not only by the lender but also the insurer. Currently, there are only three insurers in Canada which include CMHC, Genworth and Canada Guaranty.

It is important to note that although you may have been pre-approved, the approval is only based on your lender and not the insurer. The insurer will only review the application once you have an accepted offer on a home. They may require additional info such as an appraisal on the property or a co-signer. The lender and the insurer work together closely to come up with an approval based on your situation.

To obtain mortgage insurance there is an insurance premium that will have to be paid. The insurance premium can be included in your mortgage or can be paid upfront as a one time fee. The mortgage insurance premium is calculated as percentage of the loan and is based on the size of your down payment.

With the recent mortgage rule changes the insurers are taking more time to review files and being more thorough which is taking more time for an approval.
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