We recently received an email from a first time homebuyer in Mississauga that wanted to know what high ratio insurance is. This is a question that comes up from time to time and many first time homebuyers don’t realize that you need high ratio insurance in order to finance a home purchase in Canada with less than 20% down payment.
To qualify for a mortgage with your bank you will first have to qualify for high ratio insurance with the Canadian Mortgage and Housing Corporation (CMHC)
When you want to buy a house, getting a mortgage loan through a local Mortgage Broker is the way that most people should choose. If you lived in Mississauga you should look for a mortgage broker in Mississauga.
High ratio insurance is required by Canadian financial institutions because it protects them in the event you default on your mortgage payments, if there is a deficiency in the sale of the property. This insurance is not like all other types of insurance due to the fact that a premium payment is paid once upfront and can be added to the mortgage.
High ratio insurance premiums can vary somewhere between 0.25% to 3.75%. The amount you pay will depend on the amount of the mortgage required and the amount of down payment you have.
One important thing to remember is that the larger down payment you can make the less you will pay in upfront insurance premiums. If you can make a 20% down payment then this will mean you will not require high ratio mortgage insurance.
Most of the times when you purchase a home the down payment that will be needed for you to get into your new home will depend on your credit. If you have really good rating then it is possible for you to purchase a home in Mississauga with only a 5% down payment; the weaker the credit the higher the down payment required which will shrink the risk that the mortgage insurer will have on your mortgage.
So always ensure that you pay your bills on time to be sure you have good credit or expect to pay the higher down payment and insurance costs every month.
One last thing that is essential to know is that this insurance can be paid upfront or added to the mortgage. If you choose to add it to the mortgage the actual cost of that insurance rises substantially as that amount is now amortized over 25 years plus and interest is paid on that amount.
For more information about high ratio insurance visit www.gtamortgagematters.com.
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