Abstract:
Mortgage Insurance of Canada is mainly of two types, namely Bank Mortgage Insurance and Term Life Mortgage Insurance. These insurance types help both borrowers and lenders to protect their personal interests. Borrowers can avail this insurance at a lower rate of interest along with significantly low down-payment.
Types of Mortgage Insurance of Canada
Mortgage Insurance of Canada can be grouped under two categories:-
Bank Mortgage Insurance
Term Life Mortgage Insurance
Bank Mortgage Insurance
Bank Mortgage Insurance, on the other hand, does not give any discount on premiums to the healthy policyholders. At the same time, premium becomes more and more expensive for the aged person. The characteristic feature of this policy is that its ownership right lies with the bank only and not with the policyholder. Hence, the bank remains liable in paying off the mortgage amount which declines with the passage of time but the premium associated with it remains the same.
The fundamental objective of Mortgage Insurance in Canada is to provide protection to the lenders against potential default of mortgage. This type of insurance is most popular among the borrowers who are not able to pay their down-payment amount of 20% of the total price of the house. Premium associated with it range between 0.65% and 2.75%.
Term Life Mortgage Insurance
Term Life Mortgage Insurance is a policy whose ownership right lies with the policyholder itself. Term Life Mortgage Insurance policy helps the policyholder to club both mortgage as well as life insurance under one policy so that he/she could avail the facility of a lowered rate of premium. Mortgage Insurance of this type is so fierce in Canada that the customers are at an advantage for availing the best rates possible.
Basic Requirements of qualification for Mortgage Insurance Canada
- Location of the concerned home must be within the political boundary of Canada.
- Lower limit of down-payment is pegged at 5% of the actual price of the house for 2-unit dwelling and 10% for 3 or 4unit dwellings.
- Cost associated with housing on a monthly basis should not cross the 32% limit of gross income of the household.
- Total debt load on a borrower must remain within the 40% mark of the gross household income.
Advantages of Mortgage Insurance in Canada
- Reduces risk of the lender from potential default
- Helps the financial system to function in a normal way even in the periods of economic recessions
- Requisite amount of down-payment of the borrower for buying a house decreases significantly
- Comparatively low rate of interests are associated with Mortgage Insurance in Canada