Are you preparing to purchase your first home?
Homeownership rates in Canada are flying high at just above 67%. This number is only likely to increase in the coming years as it becomes easier to obtain a mortgage.
However, buying your first home can be a complex process. There are many boxes to check, particularly for Canadian citizens. For one thing, mortgage insurance is mandatory for all Canadian homeowners.
If you’re fretting about purchasing mortgage insurance, do not fear. It’s possible to choose an insurance plan that fits your needs.
Read on for insight into how to buy mortgage insurance!
What is Mortgage Insurance?
In Canada, most citizens are expected to pay a 20% down payment on a home purchase. This means fronting twenty percent of the asking price — oftentimes a hefty number for most!
Prospective homebuyers who aren’t able to put down such a large down payment do have options, however. Obtaining private mortgage insurance enables buyers to purchase homes with smaller down payments.
Mortgage default insurance is designed to protect the lender in case the borrower defaults on the home loan. Defaulting on a loan means abandoning it or otherwise not paying it due to financial limitations.
This is often surprising to most prospective homeowners. After all, isn’t insurance supposed to protect you?
However, if you are unable to put down a twenty percent down payment, you are actually considered a “risky” borrower. Even if you have excellent credit, financial stability, and a co-signer, lenders want to make sure you won’t default on your loan.
Even though mortgage insurance may increase your monthly house payments, it also enables home buyers to purchase homes with as little as a five percent down payment.
It’s also possible to choose an insurance plan that works for your financial needs!
How Much Does Mortgage Insurance Cost?
Every mortgage default insurance will have a premium cost. Most home buyers will have to pay monthly premiums. Some, however, can opt to pay a fixed annual cost in one sum.
Mortgage insurance premiums will depend on your creditworthiness as a home buyer. They will also depend on the insurance company itself and plans offered. Lastly, your monthly (or annual) premiums will depend on your mortgage amortization length, down payment, and home value.
However, most home buyers can expect to pay up to four percent of their home mortgage amount in mortgage insurance (over time).
Don’t let this cost daunt you! Remember that mortgage insurance is designed to make it easier for prospective home buyers to invest in their dream homes.
There are scores of mortgage insurance plans out there, and it can be tough navigating your options. It’s important to keep in mind that no two private mortgage insurance plans are the same.
How to Buy Mortgage Insurance
Purchasing mortgage insurance can be as simple as browsing plans online. But there’s actually more to it than that.
Here’s how to buy mortgage insurance, no matter your financial background or home prospects.
1. Identify Your Financial Standing
First things first, it’s important to know your financial standing before browsing mortgage insurance plans.
This means identifying all of your current assets, including those that belong to a domestic partner, spouse, or co-signer. It also means assessing employment, income sources, and fixed costs.
In most cases, you will have already done all of this before consulting a lender for mortgage options. However, identifying your financial standing can help you determine how much of a down payment you’ll be willing to front.
This, after all, will determine the amount of your mortgage insurance premiums. Getting a sense of what you will be likely to pay per month or year can help you choose your provider wisely.
Be reasonable when assessing your financial standing. Some prospective home buyers are overly optimistic when they declare down payment amounts. Make sure you have the true capacity to cover monthly mortgage costs (including insurance) given your current financial standing.
Remember that most Canadians can expect to pay up to four percent of their entire mortgage price in insurance premiums over the length of their mortgage.
2. Consult Your Lender
In most cases, mortgage lenders themselves may offer homebuyers information about mortgage insurance. Some partner up with local providers, for example.
Others may simply have good recommendations for you based on your financial standing.
You may also qualify for different types of mortgage insurance. This is particularly the case if you reside in North America or if you’ve taken out an unconventional home loan.
Learn more about the different types of private mortgage insurance here. This is especially valuable to note if you have been recently married.
Check in with your mortgage lender as well to calculate the approximate cost of your mortgage insurance premiums. Your lender will be able to help you identify the type of plan you are eligible for and how much you can expect to pay per month.
In Canada, keep in mind that mortgage insurance is available only to homebuyers purchasing a home within a certain price bracket. Homes valued above 1 million dollars, for example, require a twenty percent down payment.
3. Research Providers Thoroughly
Now that you understand your financial standing and mortgage insurance eligibility, it’s time to research viable insurance plans.
You can start right here at Insurdinary. Click here to get a free quote for mortgage insurance in Canada with the lowest rates.
Otherwise, take some time to identify viable providers. You may already have a list of options from your mortgage lender.
If you don’t have a list of providers whatsoever, consult family and friends. You may be surprised by how many of your connections already have mortgage insurance. They may be able to offer referrals.
You may be restricted to providers based off of eligibility requirements. This is particularly the case if you have taken out a bank mortgage. Always check with your lender to ensure that a provider is viable given your mortgage terms and eligibility.
Look for insurance providers who have been in the insurance plan industry for quite some time. Also prioritize providers who offer comprehensive insurance plans, not just mortgage insurance.
Trustworthy providers will also offer free quotes, regardless of your financial standing. Excellent providers will also deliver stellar customer service and strive to educate their clients in the ins and outs of insurance plans.
Lastly, prioritize providers who know mortgages. Mortgage insurance plans have a lot to do with conventional and unconventional home loans, so it’s essential to choose a provider well-versed in the mortgage industry itself.
4. Compare Quotes
This is perhaps the most important step in purchasing mortgage insurance. Every provider will offer different rates, so it’s essential to gather multiple quotes from multiple providers and to compare them.
We recommend gathering at least three quotes from viable providers. Make sure these are comprehensive quotes that take the following into consideration: home purchase price, down payment, mortgage amortization, and creditworthiness.
Remember that low rates do not indicate the “best” quote. Every mortgage insurance plan will have different terms, so read all of these terms when comparing quotes.
5. Take Your Time
We can’t emphasize enough the value of taking your time during the mortgage insurance plan selection process. Moving hastily through this process may have a negative financial cost, particularly if you are unclear on any of the terms offered!
If possible, consult every insurance provider about individual quotes. Be sure that you understand the terms offered before signing on any dotted lines.
Also consult your spouse, domestic partner, or co-signer (if you have any of these). Make sure you are both absolutely confident in an insurance plan’s terms before agreeing to anything.
Lastly, consult your lender one final time before moving forward with an individual plan.
6. Agree to Monthly or Annual Payments
Most insurance providers will give homebuyers an option to pay their premiums annually or monthly. Your choice will depend on your current financial standing. It may also depend on your investment plans for the future.
Agree to the payment plan that works for you. Some insurance providers will offer discounts if you do pay an annual sum up front.
7. Make Payments On Time
It’s imperative to pay your mortgage insurance premium on time, especially if you’ve opted for monthly payments. Defaulting on these payments can cost you your home and harm your credit.
If you are having trouble making mortgage insurance payments, consult your insurance provider. There may be options for reduced value payments.
Final Thoughts: How to Get Mortgage Insurance
Mortgage insurance offers borrowers and lenders a win-win situation when it comes to buying a home. It protects lenders from the cost of a defaulted loan, and it gives homebuyers a chance to buy a property with as little as a five-percent down payment.
When buying mortgage insurance, be sure to take your time. Assess your financial standing so that you know exactly how much you can expect to pay per month (or year).
Consult your lender and research providers thoroughly, depending on your eligibility. Above all, be sure to select the provider that meets all of your needs, financial or otherwise.
Ready to buy mortgage insurance? Contact us to learn more about mortgage insurance plans.