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Glossaries »
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Mortgage Loan Insurance! Things Before You Apply for a Mortgage Loan
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Mortgage Loan Insurance
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Mortgage loan insurance is a legal right of a lender that protects the lending institution only in the event of a default by the borrower. It entirely depends on your contribution towards your mortgage loan in the form of a down payment which has been set by the federal government, if your down payment is less than 20 per cent, your mortgage loan comes under a 'High-ratio mortgages' that makes you legally bound to purchase a mortgage insurance and if paying 20 per cent or more as a down payment towards your mortgage loan is said to be a 'Conventional mortgages' that entitles you a mortgage loan without any insurance by law. However, in some instances you may be asked to purchase mortgage insurance by your lenders too, if your loan is considered risky. In such a situation you have to purchase a mortgage insurance that will cost you an insurance premium typically be less than 1 per cent of the borrowed amount.
First-time home-buyers often confused by term mortgage insurance and think as some kind of burden on their loan associated with the mortgage and usually prefer to pay maximum down payment that will save them to pay loan insurance, although mortgage loan insurance if favor lenders in protecting their money against default, but on the other hand it give opportunity to borrowers to save from the upcoming high prices of property due to continues trend of rise in prices in Canada and as well as early to start and early to finish, at least before your retirement age. Moreover, mortgage insurance enables you to purchase a home with as little as a 5% down payment. The insurance premium is paid once at the time of closing, and may be paid in cash or added to your mortgage. Although the second option seems interesting but more costly, since you would have to pay interest charges on the amount of the premium too. Typically, mortgage loan insurance premium varies from 0.5% to 3% of the borrowed amount, depending on the size of your down payment. Remember, the bigger your down payment, the lower your mortgage loan insurance premium.
If you're purchasing a home and are borrowing more than 75% of the value of the property, this comes under High-ratio Mortgages, by law, the mortgage must be insured against default. This type of insurance is offered by the federal government through the Canada Mortgage and Housing Corporation (CMHC) or through an approved private insurer, like banks, credit unions, trust companies and as well as through creditor mortgage insurance (your lender will arrange for the purchase of mortgage loan insurance). For more information about the insurance companies offering default insurance in Canada you may contact directly to the Financial Consumer Agency of Canada (FCAC).
Before approving you for mortgage insurance, the mortgage insurer generally makes an assessment of your credit and may require you to pay and sometimes yours lender, an application or appraisal fee, a costs associated for that assessment to process your file and confirm the approval of the mortgage. If you default on your mortgage and the proceeds from the sale of your house are not sufficient enough to pay your mortgage's outstanding balance, the lending institution will be covered by mortgage loan insurance and in such case you would still lose your house.
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Tips To Save On Your Mortgage Loan Insurance
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How to payback your mortgage loan faster w
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Mortgage Loan Basics - Mortgage 101
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