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Canada, 21st September: According to experts, mortgage insurance can significantly reduce probability of a market meltdown in Canada.
Canada has two products covered under mortgage insurance. These include mortgage default insurance and mortgage creditor insurance, states a CMAC Mortgages broker, Stu Pocock.
Pocock says that in Canada, your mortgage must be covered by default insurance if you want to borrow more than 80 percent of the value of a house you intend to buy.
This rule offers protection for lenders from any loss in case the borrower does not pay back the borrowed money. And the benefit of this rule is that money lenders are ready to offer loans at extremely less down-payments of the total loan amount (the down-payments can be as low as 5%), adds Pocock.
Meanwhile, as for the mortgage default insurance, a down payment of at least 20% of the loan amount is required by money lenders in Canada.
No doubt, mortgage default insurance requires you to pay a big down payment, especially, as compared to mortgage creditor insurance, but it has its own set of benefits for those looking to buy a home in Canada.
Mortgage default insurance enables you to become the home owner at the earliest and the approval of insured mortgages is given earlier, Pocock adds.
In Canada, many organizations including CMHC(Canada Mortgage and Housing Corporation), AIG United Guaranty offer default mortgage insurance by charging total premium depending on the percentage of total borrowed amount of the house value.
Mortgages are issued in Canada after verifying income and employment of the people. If any borrower defaults in repaying the loans, he has to face serious consequences. Banks in Canada have the power to attach any individual borrower’s other assets and salaries (or wages) if there is any need to pay off the deficient amount in case of any mortgage default.
It’s due to the strict policies of the Canadian government that Canadians think of buying a home in Canada only when they think they can afford to buy it.