An insured mortgage is a loan that is protected by mortgage default insurance. It is intended to protect the party that issued the loan if you default on your loan in the future.
If your lender lends you the equivalent of more than 80% of your home’s value, then mortgage default insurance will be required. In other words, if you can put down a down payment of at least 20%, you will not need mortgage default insurance.
What is Mortgage Insurance, and How Does Mortgage Insurance Work?
You may need mortgage insurance if you cannot put down 20% on a down payment for the home that you want. How much mortgage insurance will cost will depend on your lender, your loan-to-value ratio, the loan amount, the terms of said loan, and your credit score.
The average mortgage insurance premium ranges from 0.5% to 1.86% of the mortgage’s initial amount. Mortgage default insurance is designed to protect the lender, not the borrower. If you cannot put down at least 20% in the form of a down payment, you will be seen as a greater financial risk than someone who can.
Ergo, mortgage default insurance will protect your lender if you cannot pay off the mortgage and need to default on the loan. For instance, you may suddenly become ill or laid off or pass away.
Your insurance company will compensate your lender for any lost fees, principal, or interest in any of the scenarios above.
What is the Difference Between Insured Mortgages, Insurable Mortgages and Uninsured Mortgages?
An insured mortgage is a mortgage that is protected by an insurance policy. As we have mentioned, the borrower pays for it so the lender will be fully compensated if they default. Insured mortgages will usually carry a lower interest rate.
An insurable mortgage will also carry low rates, but they tend to be higher than the rates included with an insured mortgage.
In this case, the lender, instead of the borrower, insures the mortgage. Since the lender will pay for the insurance, you won’t have to worry about paying premiums every month, nor will you have to worry about any HST payments when it comes time to close.
An uninsurable mortgage is a type of mortgage that cannot be insured if you, the borrower, default on the loan. It should also be noted that a mortgage refinance cannot be guaranteed or insurable, so it will always be considered an uninsurable type of loan.
What are the Benefits of Insured Mortgages?
Mortgage insurance allows your lender to lend you the funds needed to own a home by providing a policy that protects them from losses if you fail to pay off your mortgage. You will be able to purchase a property that adheres to your unique lifestyle with a smaller downpayment. You will also be provided with more lending options that will help you to buy the home of your dreams.
You may also be eligible for a better interest rate. The lender will be provided with greater flexibility, allowing them to provide you with rates comparable to those charged to people who can put down a down payment of 20% or more.
You will also be provided with more down payment options than normal. A substantial down payment should never be a barrier to homeownership. Your lender will discuss all of the different options available to you to make an informed decision.
Mortgage insurance will also allow you to buy a home instead of renting. With the right lender and real estate agent, you may be able to buy a home that charges a monthly amount similar to what you were paying as a renter.
You will be able to customize/renovate your home to your liking and eventually own your property. Many of the barriers to financing are eliminated via mortgage insurance.
If you cannot meet the criteria most financial institutions require but still have good credit, mortgage insurance may allow you to buy a house.
There are also mortgage insurance options that will allow you to buy a vacation property, provided that your financial status is good. You may also be able to get your money back.
For instance, if you decide to buy a home that is energy efficient, then you may be able to receive a 10% refund on your monthly insurance premium. You may also be able to save on multiple household expenses.
Being insured will allow you to take advantage of savings on moving supplies, truck rentals, appliances, home-renovation materials, and more. As can be seen, an insured mortgage has many benefits.
Taking the First Step
Mortgage insurance allows the recipient to get aid when they need it. A portable mortgage will also allow the user to move its terms to a new home in the future.
10 Benefits of Mortgage Insurance | Premiere Mortgage (choosepremiere.com)
What’s the Difference Between Insured, Insurable, and Uninsured Mortgages (clovermortgage.ca)
Mortgage Default Insurance | CMHC Mortgage Insurance - RATESDOTCA
How Much Does Mortgage Insurance Cost? - SmartAsset
What Is An Insured Mortgage? – The Blake Wilson Group