Example: Let’s say you are a first-time homebuyer in Canada and you want to purchase a home for $500,000.
You have a down payment of $40,000, which is 8% of the purchase price.
Since your down payment is less than 20%, you are required by law to purchase mortgage default insurance.
The insurance premium for this type of mortgage is calculated as a percentage of the mortgage amount.
In this case, the mortgage amount would be $460,000 (the purchase price minus the down payment).
The insurance premium would be 4.00% of the mortgage amount, which comes out to $18,400.
This premium can be paid upfront or added to the mortgage amount.
Conclusions and Further Thoughts
The benefits of purchasing mortgage default insurance in this example are that you are able to purchase a home with a smaller down payment, and the lender is protected in case you default on the mortgage loan.
However, the downside is that you would have to pay a premium of $14,260, which would increase the overall cost of the mortgage loan.
Contact Huber Mortgage to talk through your options! Contact HERE.
PS – One of my hobbies is blogging about mortgages, debt and government policy. During the day I’m a MORTGAGE BROKER in Kelowna, BC!
Check out the Huber Mortgage Home Buyers Guide HERE