What Is Mortgage
Insurance?

Deciding to purchase a home is a large financial commitment, and for many potential homeowners the cost of buying a home seems overwhelming. When you begin to look at the cost of a home, and the potential possibilities in applying for a mortgage, one of the most important aspects to consider is the size of the down payment. Many banks and financial institutions require a certain percentage of the cost of the home as a down payment in order for a home buyer to be approved for their mortgage. A mortgage insurance company is used as a way to make home ownership possible for those who are unable to make large down payments on a home purchase.

A mortgage insurance company is there to help potential home buyers be able to purchase the home of their dreams. Mortgage insurance is issued on a home mortgage as a way to protect the lender if there a circumstance occurs which makes the buyer unable to pay. Different banks and lenders have varying policies on the requirements of mortgage insurance; however, the Canadian government requires all high-ratio mortgages to be backed by a loan insurance company. High ratio mortgages are categorized as mortgages in which buyers put down less than twenty percent of the total home price for a down payment.

A loan insurance company works to help lenders in providing those home buyers who have less equity, the chance to be offered the same low interest rates as those with higher down payments. While the government requires mortgage insurance for down payments under 20%, certain lenders will require their home buyers to have larger down payments than 20% to be exempt from purchasing loan insurance. It is always a good idea to contact a variety of financial institutions or possible lenders to determine what their requirements are on mortgage insurance. It is important to look around at different options before you decide which one is the best for you.

The cost of mortgage insurance premiums is based on the total cost of the mortgage. When it comes to purchasing insurance through a loan insurance company, it can be paid for in a couple of different ways. While the entire cost of home insurance can be paid for in one lump sum when closing on the property, there are additional options as well. In many cases, homeowners will spread the cost of mortgage insurance over the entire span of the loan. This is a good way to make payments smaller and more manageable if paying in one lump sum is not a possibility.

It is important to realize that there is a difference between mortgage insurance and mortgage life insurance. Mortgage life insurance is used to protect homeowners and families from the possible death of a family member. Mortgage insurance is used to protect lenders from possible default that could occur if the buyer was unable to pay off the mortgage. A mortgage insurance company will allow many home buyers the possibility of purchasing a home when otherwise they may have not been able to afford because of the cost of a down payment.