Whether you’re trying to obtain a Calgary mortgage or a Toronto mortgage, if you don’t have at least a 20 per cent down payment, you’re going to have to find a way to pay for mortgage insurance. This insurance, especially the major provider in Canada – CMHC – has been under a lot of fire in the press lately; and they’ve even had their oversight changed as they’re now part of OSFI’s responsibility, and not the Department of Human Resources. But this has caused some confusion for Canadians, who now think that the way mortgage insurance works has changed. In fact, it’s exactly the same – the organization itself may just have to follow a few different reasons.
Still, there are a few different myths floating around out there, and we’re here to debunk them:
Mortgage insurance protects the homeowner
This is one of the biggest mortgage insurance myths there is; and it’s so big that we even touched on it in one of our posts last week. This is absolutely not true! The insurance is put into place to protect the lender in case the borrower defaults on the loan; however it’s still the homeowner that is responsible for paying for it.
I only have to get mortgage insurance if I have less than a 20 per cent down payment
If you have less than the required 20 per cent down payment you must purchase insurance; no ifs, ands, or buts about it. However, there are other situations – like when your credit rating isn’t very high – that lenders may also require you to take out mortgage insurance.
CMHC is the only mortgage insurance provider in Canada.
CMHC is definitely the biggest provider of mortgage insurance in Canada, and they’re also the ones that have been in the news the most lately. However, there are two other insurance companies in Canada – Genworth, and AIG United Guaranty – that also provide mortgage insurance.
Mortgage insurance means that my mortgage is 100 per cent backed by the government.
This one can be tricky. Governments do “back,” or guarantee, 100 per cent of the mortgages that are insured by CMHC; meaning that they’ll pay 100 per cent of the mortgage if the borrower defaults. However, mortgages insured through Genworth and AIG United Guaranty only receive 90 per cent of federal backing. That ten per cent could be a huge difference to a homeowner!
I can choose who I get mortgage insurance through.
Sadly, there isn’t much truth to this one either. Because it’s the lender that’s being protected through the insurance, it’s typically the lender that can decide where the insurance is obtained from. However, as a homeowner or homebuyer, you’ll definitely be able to speak up and voice your opinion, if you prefer one over the other.
