Buying a new home in Barrie’s hot real estate market is without a doubt a good investment. Home prices are on the rise and look to only be increasing in value in the foreseeable future. But if you don’t have a large nest egg of funds to put towards a down payment, how can you buy a sought-after home as an investment?
If you have a minimum of a 5% down payment you might be eligible for what is called mortgage default insurance which will allow you to purchase a home without having the standard 20% down payment available. Mortgage default insurance more commonly known as CMHC must be purchased by those looking to obtain a high-ratio mortgage in order to protect the mortgage lender from incurring debt if the buyer happens to default or miss making payment on their mortgage. A common misconception about mortgage insurance is that the insurance protects the buyer, whereas in actuality the insurance protects the lender, not the buyer. If the buyer were to default on making payment the lender can still pursue payment and penalties for missed payments as outlined in your mortgage agreement, so be careful to review all of the small print before signing on the dotted line.
When does a buyer need to buy mortgage default insurance?
By law any mortgage that is considered a high-ratio mortgage must be backed by mortgage default insurance. A mortgage is considered a high-ratio mortgage when the buyer puts down less than 20% of the purchase price of the home as a down payment while financing the remaining amount through their mortgage. The term high-ratio relates to the fact that the loan to value ratio is more than 80%.
How much does mortgage default insurance cost?
The premium of your mortgage default insurance is based on the ratio percentage of your down payment. For example, if your loan to value ratio is up to and including 60% your premium could be about 0.60% whereas if your loan to value ratio is up to and including 80% your premium could be about 1.25%. As a general rule the higher the ratio the higher your premium will be.
How long do you have to pay for mortgage default insurance for?
When you purchase mortgage default insurance you purchase it for the entire duration of your mortgage amortization. In some cases, if you were to sell the first home you took out mortgage default insurance on you could be eligible for a portability program to move your default insurance from one home to the other though your premiums are not refundable if you were to pay off your mortgage early.
How can you save on your mortgage default insurance?
If the home you are buying is deemed energy-efficient or if you make energy-saving renovations to the home your mortgage is insured upon you could be eligible for a 10% refund on your mortgage insurance premiums.
If you have any questions about mortgage insurance or would like to take a look at your current situation and finances to see if you would be eligible for a mortgage with the support of mortgage default insurance or if you are eligible for a refund as mentioned from recent renovations, give me a call at 705-315-0516.