Also known as mortgage default insurance, this is a form of protection for lenders (and that lender’s investors) in the event that a borrower defaults on his or her payments.
For homebuyers with a down payment of less than 20%, insurance is generally required by law. Default insurance is provided by either CMHC, Genworth or Canada Guaranty.
Mortgage insurers charge a premium for this insurance coverage, which is typically paid by the borrower and added to the mortgage.
CMHC offers a calculator to determine the mortgage insurance premium here.
Among other things, an insured mortgage requires that:
- The property be owner-occupied
- The mortgage not be a refinance
- The amortization be 25 years or less
- The borrower have a 600 minimum credit score (680+ for best rates)
- The borrower have a gross debt service ratio of 35-39% or less
- The borrower have a total debt service ratio of 42-44% or less
- The borrower prove he/she can afford a payment at the benchmark posted 5-year fixed rate, as published by the Bank of Canada