Mortgage insurance is an important aspect of the mortgage process, particularly in the province of Alberta. It provides financial protection to lenders in the event that a borrower defaults on their mortgage payments. In this blog post, we wil
l discuss the basics of mortgage insurance, as well as how it applies to Alberta mortgages.
When a borrower applies for a mortgage, they are typically required to put down a certain percentage of the total loan amount as a down payment. However, if the borrower is unable to put down this amount, they may be required to purchase mor
tgage insurance. This insurance acts as a guarantee to the lender that they will be able to recover their losses in the event of a default.
There are two main types of mortgage insurance: private mortgage insurance (PMI) and Canada Mortgage and Housing Corporation (CMHC) insurance. PMI is typically purchased by borrowers who have less than a 20% down payment, and is provided by private insurance companies. CMHC insurance, on the other hand, is provided by the government and is typically required for mortgages with a down payment of less than 10%.
In Alberta, the most common type of mortgage insurance is CMHC insurance. This is because many borrowers in the province are first-time home buyers who may not have the large down payments required to avoid mortgage insurance. Additionally, the CMHC insurance premium is often less expensive than private mortgage insurance.
The cost of mortgage insurance can vary depending on a number of factors, including the size of the down payment and the type of mortgage. For example, a borrower with a 5% down payment will typically pay a higher premium than a borrower with a 10% down payment. Additionally, borrowers with a fixed-rate mortgage will typically pay a lower premium than those with a variable-rate mortgage.
It is important to note that the cost of mortgage insurance is not a one-time expense. Instead, it is typically added to the monthly mortgage payment and can be paid off over the life of the loan.
In conclusion, mortgage insurance is an important aspect of the mortgage process in Alberta. It provides financial protection to lenders in the event of a default and is typically required for borrowers with less than a 10% down payment. The cost of mortgage insurance can vary depending on a number of factors, including the size of the down payment and the type of mortgage. It is important for borrowers to understand the costs and benefits of mortgage insurance before entering into a mortgage agreement.
If you have questions about mortgage insurance or how it applies to your mortgage options, give our Alberta mortgage team a call today!