Many would-be homebuyers want to get into the property market sooner than others, even if it means having less than the required deposit amount.
When buying a house, you typically need a down payment of at least 20% of the property’s value to get a competitive home-loan offer. However, it is not uncommon for borrowers to have less than the required amount.
If you want to proceed with your home purchase with less than a 20% down payment, you will need to pay the mortgage loan insurance.
The CMHC mortgage insurance is a one-time insurance premium that allows borrowers to get a home loan with as little as a 5% deposit. A common misconception about mortgage loan insurance is its purpose — it is actually meant to protect your lender in case you are not able to service your loans, not the other way around.
The price of the property determines the deposit needed for you to qualify for mortgage insurance. If the property costs $500,000 or less, you only need to have a minimum down payment of 5%.
If your target property is more than $500,000, you will need to have a minimum of 5% down on the first $500,000 and 10% on the remainder.
For homes costing $1m or more, no loan insurance is available. This means that you will not be allowed to proceed with your purchase without the typical 20% down payment.
The cost of mortgage loan insurance varies depending on your loan size and down payment. You can pay it in a lump sum or in instalments. Choosing the latter would mean the cost would be spread out over your monthly repayments.
To give you an idea of how much mortgage insurance can cost you, consider this scenario: You are applying for a 25-year home loan for a property worth $485,000. For your down payment, you managed to save only 5% of the total value of the property. This means that the total loan amount that you will be borrowing is $473,421. For this loan, you will need to pay $12,671 in mortgage insurance.
Which Mortgage has an online tool that can help you calculate the potential mortgage loan insurance based on your down payment, loan term, and property value. Check it out by clicking this link.
You can also reach out to a mortgage broker to know more about mortgage loan insurance. Which Mortgage can connect you to mortgage brokers near your area — go to this page to find out how.