The cost of mortgage insurance in Ontario is an essential topic of discussion for most homeowners. Many factors come into play when discussing mortgage insurance premiums. The loan amount is one of them. Also, provincial sales tax may apply and thus increase your premium value. This may seem complicated. However, it is important to know that mortgage insurance is important
Mortgage insurance in Ontario Canada provides peace of mind and is also required for buyers with smaller down payments. Mortgage insurance protects the money lender from a mortgage default. This is in contrast with a mortgage life insurance policy that pays the balance of the mortgage. This is effective in case something were to happen to you to prevent a burden on your estate or family.
In Ontario, homebuyers with less than 20% down payment are required to purchase mortgage insurance. Since this is the case, many homeowners have sincere questions about the cost of mortgage insurance. In this article, we will answer these questions. Also, we will estimate how much you can expect to pay to get adequate mortgage insurance coverage.
What is Mortgage Insurance?
It is an insurance policy that covers a lender if borrowers do not repay their mortgage. Mortgage insurance is generally required on mortgages when down payments are less than 20% of the property value.
Typically, making a 20% down payment is a difficult hurdle to clear for many homebuyers. Mortgage insurance was created to reduce that barrier and help more people afford homeownership.
There are two types of mortgage insurance available everywhere, including Ontario, and the cost varies accordingly. They are;
- Private mortgage insurance (also referred to as Private MI, MI, or PMI). Private companies usually offer this.
- Government insurance. This kind of coverage is offered through programs supported by the CMHC.
By choosing to obtain mortgage insurance in Ontario from a private company, you will enjoy the following benefits:
- Not having to pay an upfront premium.
- A lower loan amount (no financed upfront premium).
- A lower monthly mortgage payment.
- Getting greater home equity.
- It also gives the ability to cancel mortgage insurance sooner rather than later.
Furthermore, there are several different kinds of loans available to borrowers with low down payments. Depending on what type of loan you get, you’ll pay for mortgage insurance in different ways:
If you get a Canada Mortgage and Housing Corporation (CMHC)
Your mortgage insurance premiums are paid to the Canada Mortgage and Housing Corporation (CMHC). CMHC mortgage insurance is required for all CMHC loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent.
CMHC mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.
If you don’t have enough cash on hand to pay the upfront fee, you are allowed to roll the payment into your mortgage instead of paying it out of pocket. If you do this, your loan amount and the overall cost of your loan will increase.
If you get a conventional loan
Your lender may arrange for mortgage insurance with a private company. Private mortgage insurance (PMI) rates vary by down payment amount and credit score but are generally cheaper than CMHC rates for borrowers with good credit. Most private mortgage insurance is paid monthly, with little or no initial payment required at closing. Under certain circumstances, you can cancel your PMI.
Mortgage Insurance Costs in Ontario: All You Need To Know
Mortgage insurance costs in Ontario vary by loan program. But in general, mortgage insurance is about 0.5-1.5% of the loan amount per year. So for a $250,000 loan, mortgage insurance would cost around $1,250-$3,750 annually — or $100-315 per month.
Also, the minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.
Mortgage loan insurance is available only for properties with a purchase price or as-improved/renovated value below $1,000,000.
Furthermore, CMHC insurance regulation and premium rates in Ontario are the same across Canada. Insurance premium rates range from 1.80% to 4.00% of your mortgage amount.
Federal regulations on CMHC insurance include the following:
- Homes purchased for more than $1 million are not eligible for CMHC insurance, therefore requiring homeowners to put more than 20% down.
- CMHC insurance must be purchased for all homes with less than 20% down payment.
- The maximum amortization period on CMHC insured mortgages is 25 years.
- Homes sold over $500,000 can no longer be purchased with a 5% down payment. The new minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
The CMHC insurance premium is added to your mortgage amount and is paid off over your amortization period through monthly mortgage payments.
Generally, the cost of mortgage insurance varies and is dependent on a few more factors. Below are a few of the factors that determine the value of your mortgage insurance in Ontario.
Mortgage insurance rates
Note that we cited the “annual” mortgage insurance cost above. That’s because, for most loan types, there are two mortgage insurance rates: an annual rate and an initial rate or “fee.” The initial mortgage insurance fee is usually higher, but it’s only paid once when the loan closes.
Cost of mortgage insurance by loan type
Each loan type has a different mortgage insurance rate. So even for the same loan size, mortgage insurance costs could be different depending on whether you got a conventional mortgage or CMHC mortgage.
How is mortgage insurance calculated?
Mortgage insurance is always evaluated as a percentage of the loan amount. For example: If your loan is $200,000 and your annual mortgage insurance is 1.0%, you’d pay $2,000 for mortgage insurance that year.
Since annual mortgage insurance is re-calculated each year, your PMI cost will go down every year as you pay off the loan.
However, for CMHC loans, the mortgage insurance rate is constant. The rate is always the same for every customer.
For conventional loans, mortgage insurance is calculated based on the customer’s application. Standard PMI mortgage insurance is evaluated based on your credit score and down payment amount.
In conclusion, it’s essential to note that the cost of mortgage insurance is not to be calculated unless other factors are considered. The exact premium will be calculated when you apply for a mortgage, and provincial sales tax may apply.
Mortgage insurance has a lot of benefits to offer. More importantly, it can help you qualify for a mortgage loan you might not otherwise have qualified for.
Are you looking to get mortgage insurance in Ontario? Do you have more questions about the amount you have to pay for mortgage insurance? Contact us today! We’ve got the answers and expertise you need!