When you need a mortgage loan that is more than 75% of the purchase price of your home, mortgage loan insurance is required. It protects the lender against loss by default and, by law, most Canadian lenders require it.
Mortgage loan insurance protects the lender against a loss in the event the borrower defaults on the loan. With the risk of lose removed, lenders have the confidence to make loans for up to 95% and in some cases 100% of the purchase price of your home.
Mortgage loan insurance has allowed many Canadians who are unable to accumulate a minimum down payment to become a homeowner.
Cost of Mortgage loan insurance:
Application fee: If the lender provides a valid appraisal, the fee is $75.00; otherwise, it’s $235.00. Neither the $75.00 nor $235.00 covers the inspection or appraisal services.
Insurance premium: The mortgage loan insurance premium ranges in from 0.5% – 3.75% of the loan amount, depending on the amount of down payment, the size of the loan, and the value of your home. The premium can be added to your monthly mortgage payments, or paid in a lump sum at the time of purchase, saving interest charges on the premium itself.
You should note that sales tax is applicable on the payment and must be paid on closing.