So you’ve noticed that you are paying an insurance premium on your mortgage and are wondering what it is and why you have no choice in this insurance option. This is called default insurance. Mortgage default insurance protects the lender from losing out should a mortgage default on payments and have home move towards re-possession. This is something that all lenders have to charge due to federal legislation.
If you are purchasing a home with less than 25% down payment than you do not have a choice in paying it. Here in New Brunswick, there are two main insurers for this, CMHC and Genworth. Note that this is not a fee or charge you are paying out of pocket, it is added to your mortgage and calculated into your monthly payments when you sign your mortgage agreement.
Many lenders are now opting to put default insurance on all mortgages. This is due to the high repossession rate within Canada and more specifically, the United States of America. Due to the risk involved with a lender approving mortgages at such low-interest rates, they may find it in their best interest to be insured. Traditionally if you put 25% or more down on your mortgage than you wouldn’t pay this, however, most lenders are going with default insurance on all mortgages. By talking to Team Jardine we can help you determine if you have to pay this or if there is a way to avoid it.
The process for the bank is simple. Though they are not in the business of repossessing peoples home and are more often than not, willing to help you in any way they can, there are still situations in which they repossess the property. If they are unable to sell the home within a reasonable timeframe, the default insurance covers their financial loss making it so the bank doesn’t actually lose any money. Why does this benefit you? If banks did not have default insurance to protect themselves in this manner than it would be much more difficult to qualify for a mortgage and interest rates would be much higher. Therefore, even though you have to pay this and get no choice in the matter, it is beneficial for all those involved.
If you would like to speak to one of our experienced mortgage brokers about default insurance give us a call today and one of our Team Jardine members will guide you through this.