Private mortgage insurers faced a crunch during recession
when the Canadian banks were interested in doing business with only Canadian
Mortgage and Housing Corp (CMHC), which has a 75% market share and 100%
mortgage backing by the government. Private insurers, in contrast only had a
90% government backing. The result of this was that just two private mortgage
insurers – AIG and Genworth got left in the country.
But the new year and an improved economy has seen rising
competition in the mortgage insurance market with Ontario Teacher’s Pension
Plan joining hands with National Guaranty Holdings Inc to take over AIF United
Guaranty Mortgage Insurance Co, the struggling arm of AIG Inc.
According to a recent
news article, this increasing competition is driving down the mortgage
default insurance premium. Before this threat of new players in the market, the
premium stood at 3.5% of the home value for a minimum down payment of 5%. The
premium has now fallen to 2.75%. There is more good news for mortgage
borrowers. Now, the $235 fee to fill the insurance application has been scrapped
and portable insurance restrictions are also becoming a thing of the past. On
the other hand, rising competition has also contributed to longer mortgage
amortization lengths, which most borrowers will agree is not a very good thing.
Borrowers are required to pay mortgage default insurance if
they fail to make a down payment on their homes. The insurance covers the mortgage lender
or bank in the event of a default. Unlike its neighbor, the United States,
Canada has an excellent record when it comes to low mortgage defaults (which
are under 1%).
