Last week, we updated an old blog post of ours on New to Canada mortgages. One piece of the puzzle we only briefly touched on was mortgage default insurance, and the fact that CMHC will insure most newcomers’ home purchases with a down payment of as little as 5% if you have permanent resident status or 10% if you are a non-permanent resident. However, CMHC isn’t the only mortgage default insurance provider in the country.
If you’re a newcomer to Canada and you need to purchase mortgage default insurance, because you have to put down less than 20% of the purchase price of a home, there are three insurance providers you can choose from. Grab a coffee from Timmy’s and keep reading!
Mortgage Default Insurance
Before we tell you about each provider, let’s talk about what mortgage default insurance is and why you might need to purchase it.
If you want to purchase a home and your down payment is less that 20% of the purchase price, you would be taking on a high-ratio mortgage. In Canada, high-ratio mortgages require mortgage default insurance, which protects the lender in the event that you stop making your monthly mortgage payments and default on your loan.
The cost of your mortgage default insurance is a premium based on the purchase price of the home and the size of your down payment. For example, if you buy a home for $250,000 and you put down 10% ($25,000), you would need to borrow $225,000 ($250,000 – $25,000) for a mortgage. If the mortgage default insurance premium on a 10% down payment was 2.00%, your premium would $4,500 ($225,000 x 0.02).
Your premium is then added to your mortgage loan ($4,500 + $225,000 = $229,500) and is paid off over the life of your mortgage.
Mortgage Default Insurance Providers in Canada
Now that you know what mortgage default insurance is, let’s look at the three mortgage default insurance providers in Canada and what each provider offers newcomers.
1. Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation (CMHC) is the most used mortgage default insurance provider in Canada. CMHC offers mortgage default insurance to newcomers to Canada through their CMHC Newcomer Program. The program offers competitive insurance premiums, which fluctuate based on the size of your down payment as a percentage of the home’s purchase price.
CMHC Newcomer Program Insurance Premiums:
CMHC also offers flexible qualification requirements to homebuyers who are new to Canada and may not yet have an established credit history. For example, instead of relying on a traditional credit score to gauge a homebuyer’s credit worthiness, CMHC will substitute other factors, such as rental history, employment history and international credit score.
*CMHC also offers mortgage default insurance to newcomers who may have more than a 20% down payment, but who also have a credit history that is too weak to qualify for a conventional mortgage.
2. Genworth Financial
Genworth Financial is Canada’s largest private supplier of mortgage default insurance. Genworth offers mortgage default insurance to newcomers who have arrived in Canada within the last 5 years, through their New To Canada™ Program.
Genworth New To Canada™ Insurance Premiums:
Genworth’s premiums are identical to those offered by CMHC, but their qualification criteria are slightly different. For example, newcomers must have at least 3 months of employment history in Canada and their down payment cannot be a gift. A newcomer has to prove they can save the money for a down payment themselves, which is another way for the lender to gauge the risk of lending to someone without a credit history.
*Genworth Financial also offers mortgage default insurance to newcomers who have a down payment that is greater than 20% of the home’s purchase price but a weaker credit history in Canada.
3. Canada Guaranty Mortgage Insurance
Canada Guaranty Mortgage Insurance is the only 100% Canadian-owned private mortgage default insurance company. Canada Guaranty offers mortgage default insurance to newcomers who have arrived in Canada within the last 5 years, through their Maple Leaf Advantage™ product.
Canada Guaranty Maple Leaf Advantage™ Premiums:
Again, Canada Guaranty’s premiums are identical to what CMHC and Genworth offer, but their qualification criteria is different. For example, newcomers must be able to provide 12 months of rental history from a landlord, as well as 12 months of utility payments from a major service provider. These rules were designed to help newcomers who don’t have an established credit history in Canada.
*Similar to CMHC and Genworth, Canada Guaranty also offers mortgage default insurance to newcomers who have more than a 20% down payment but a weak credit history in Canada.
Thanks to these programs, it’s possible for newcomers to Canada to obtain a mortgage and buy a home, even if they can’t afford to put more than 20% down or if their credit history has yet to be established.