If you are thinking about applying for a home mortgage, you may be doing a lot of research. You may be visiting http://mortgagerates.ca to learn more about the loan programs available and to see which lenders and mortgage brokers offer the best rates. You may also be using mortgage payment and affordability calculators to determine how large or expensive of a home you can afford to buy. In your effort to learn more about home mortgages, you may have stumbled across CMHC mortgage insurance a time or two, and you may be wondering what this insurance is and if you need it.
What CMHC Mortgage Insurance Is
This is a type of insurance that is designed to protect home mortgage lenders from the financial loss that they would experience if you default on your loan. Of course, if you default on your loan, a lender has the right to foreclose on your property. Most will then sell your property and use the proceeds from the sale to pay off your outstanding mortgage balance. At first glance, it appears that a lender would not experience much financial loss at all if you defaulted on the loan. However, there are costs associated with foreclosing on the property, preparing it to sell and actually selling it, and these are costs that a lender will be responsible for. Mortgage insurance is designed to minimize any financial loss associated with a default and related expenses.
Do You Need CMHC Mortgage Insurance?
CMHC mortgage insurance is generally required when a buyer purchases a home with less than a 20 percent down payment. Therefore, if you are putting down 20 percent or less of the sales price as your down payment, you should anticipate the expense of a mortgage insurance premium. You can use a CMHC mortgage calculator to determine how much your insurance premium may be. Keep in mind that you can pay for the premium up-front with your closing costs, or you can spread out the cost of your premium over your monthly mortgage payments.
It is important to understand how CMHC mortgage insurance will affect your monthly payment, your closing costs or both. In some cases, it may be worthwhile to simply put some extra money down and avoid having this extra fee tacked onto your closing costs or mortgage payment, and using the online calculators can help you to determine if this is the case for you.