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While mortgage rates in Calgary continue to make purchasing a property affordable, borrowers who are unable to come up with a 20 percent down payment are not out of the woods when it comes to costs. Mortgage loan insurance is mandatory in cases where a 20 percent down payment is not provided, making it important for Canadians to understand how mortgage loan insurance works, as well as how to qualify for it.
How mortgage loan insurance works
For many borrowers, especially those looking to purchase their first home, it can be difficult to come up with a minimum down payment of 20 percent. Mortgage loan insurance acts as protection for these borrowers, as well as their lenders. If a borrower defaults on a mortgage, this insurance will pay for any costs not covered from the sale of the property, protecting both the borrower and lender from financial loss.
Mortgage loan insurance is typically valued at a percentage of the total mortgage amount, based on how much money a borrower has for a down payment. The more money a borrower puts down upfront, the less they will have to pay for mortgage loan insurance.
The cost of mortgage loan insurance is usually passed onto the borrower from the lender with the option of paying the premium in advance with a lump sum or adding the cost to a borrower’s monthly mortgage payments.
How to qualify for mortgage loan insurance
In order to qualify for mortgage loan insurance, the property a borrower is attempting to buy must be located in Canada. The purchase price must also be below a certain amount when compared to the loan-to-value ratio.
The down payment required is generally 5 percent for a single-family home or two-unit property. This requirement may be more for larger properties. In addition, the total amount of monthly housing costs, including principal, interest, property taxes and heating, should not be more than 32 percent of total gross household income. Also, the amount of debt a borrower has should not be more than 40 percent of total gross household income.
Requirements vary from lender to lender, so it’s important to make sure you qualify based on your specific home loan.
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