One cost that can be overlooked by home buyers is mortgage default insurance.

So, what exactly is mortgage default insurance and why do you need it?

If you’re buying an owner-occupied home with less than 20% down payment, you are required to purchase mortgage default insurance in order to arrange your financing.  When buying a rental property, some lenders require you to purchase this insurance if you put down less than 35% towards your purchase.

As real estate values in Metro Vancouver continue to soar, many home buyers, especially first time home buyers, often have less than 20% of the purchase price available as a down payment.  The average price of a new home is now well above $500,000 meaning a 20% down payment can easily exceed $100,000.  This is a lot of money for most people and it’s understandable why many fall short of this 20% down payment.

Conventional vs. High-Ratio Mortgage

Borrowers who have a payment of 20% qualify for conventional mortgage financing.  For your lender this means the property has sufficient equity to protect the lender from any shortfall should you, the borrower, default on your mortgage.  Having a higher down payment also means you have more “skin in the game”, making it less likely you’d default and walk away.

A high-ratio mortgage means the borrower has anywhere from 5% – 19.99% towards their down payment.  Financing can still be obtained but in this case you will be required to purchase mortgage default insurance.  The higher loan-to-value (LTV) percentage of a high-ratio mortgage means you have less equity at stake and thus a higher potential of default.

The lender wants to protect their investment and they do this through mortgage default insurance.  This is an additional cost to the borrower but it also makes it possible for those with limited savings, particularly first time homebuyers, to get into the market sooner.

Mortgage Default Insurance Providers

There are three major insurers in Canada.  The Canadian Mortgage & Housing Corporation (CMHC) is a Crown Corporation and the largest provider of mortgage default insurance in Canada. Genworth Canada and Canada Guaranty also provide this type of insurance to the lenders.

Your lender or financial institution will arrange and pay for your insurance, but this cost is typically passed on to the borrower and is incorporated directly into your mortgage payments.   Insurance premiums are tiered and based on the amount borrowed and the size of your down payment.

To see a detailed list of premiums visit CMHC’s site to see how much it costs.

Thanks for reading and feel free to contact Dominion Lending Centres with any questions.

Brent Shepheard

Dominion Lending Centres – Accredited Mortgage Professional

This is the great debate around many household dinner tables nowadays: improve or move? With all the attention the real estate market is getting these days in the local and national media, I’m surprised everybody isn’t cashing in, selling and moving. Everybody who owns real estate is holding their very own lottery ticket, each with a slightly different purse.

Sell your home for lots of cash and buy new…what could be easier! There is definitely something to be said about buying new and ‘shiny’ with a warranty. It’s glamorous, it’s easy and it makes for great Facebook posts.

Heck, on the flipside, posting before-and-after pictures of a renovation could be more impactful. You could even use the platform as a confirmation tool with picking wall colors, countertop material or even layout.

You don’t have to sell to win the lottery. The equity in your home could also be viewed as the lottery proceeds. In my opinion is there isn’t enough thought put into staying in the current home and improving the living space. Bear in mind, there are valid reasons why you have lived there so long: an established network of friends, close to school, convenience for day-to-day amenities, access to work, beautiful big back yard (new homes have small yards nowadays), family activities, kids’ sporting programs…the reasons are endless to stay…Bu-u-u-ut one could say there are many reasons for moving too.

My only intention for this blog post is to create questions and have you think, is improving or moving the best option? Don’t always jump at the dangling carrot; there could be other options.

One could argue that deciding to sell and move is the easier of the two. All that you need to do is to call your trusted Realtor and suddenly within 4 to 9 days your home is sold. But is that the more financially sound choice?

Here are the costs to consider when selling your home.

* Approx Realtor fees: 3.50% on the 1st $100K, 1.15% on the balance
* Potential mortgage penalty: Based on the balance, or it can be ported
* Lawyer fees: $2,000 (sell and buy)
* Property repairs: TBD; major repairs or just minor touch ups?
* Movers: Professional movers $2,500 or friends/family
* Inspection: $400-500 buying new property
* Appraisal: $300 buying new property with 20% down or more
* Property Transfer Tax: 1% on the first $200K & 2% on the remaining bal. (purchase)
* Mortgage payment: Difference between mortgage payments (old and new) is a cost
* GST: Are you buying a brand new home?

The other side to the equation is staying in your current home and making it better; more livable, shiny, new, fresh…Facebook worthy!

Here are the costs to consider when improving or renovating your home. This scenario makes the assumption that you will be accessing your equity to improve your home.

* Appraisal: $300; to determine market value for equity leveraging
* Mortgage payment: What is the overall increase per month with the additional funds?
* Permits/Plans: Are renos structure or surface? New floors, new paint etc…
* Product to be used: Cost to purchase new flooring, paint etc…
* Demolition: Cost of disposing of the materials correctly.
* Installation: Can you do it or do you need to hire a contractor?

Both scenarios create disruptions in life. Which one makes more sense for you and your family? Moving can have long-term effects, whereas improving is a short-term impact with living in a construction zone.

Either of the options is a great journey. Don’t focus on the destination. Make sure you consult with your Dominion Lending Centres Mortgage Broker first to consider all the costs and qualifying ramifications. The lending landscape is constantly changing; don’t assume you will qualify for a mortgage today because you qualified for one 5, 10, 15, 20…years ago.

Michael Hallett

Dominion Lending Centres – Accredited Mortgage Professional