What Is An Insured Mortgage?

An insured mortgage is a key term every first time buyer should know.

When purchasing a home with a down payment of less than 20% of the purchase price, mortgage default insurance is required. This insurance protects the lender if you default on the mortgage.

Here's how the down payment rules apply:

- For the first $500,000 of the purchase price, a minimum 5% down payment is required.

- For any amount above $500,000, up to $999,999, a 10% down payment is necessary.

- If the home costs $1 million or more, a minimum 20% down payment is mandatory.

When purchasing a property exceeding the million-dollar mark, lenders often have specific requirements for the down payment, referred to as a sliding scale.

Now, why do you need to pay for this insurance? Lenders require it to mitigate their risk. By paying a premium that is added to your mortgage, the insurance company covers the lender if you fail to make your payments and then may also handle any legal proceedings.

Most first-time buyers opt for this insurance because it reduces the lender's risk, resulting in a lower interest rate for the borrower. This makes it easier to enter the housing market without needing the full 20% down payment. However, if you're purchasing a property over $1 million, planning to rent it out, or buying a large multi-unit home, a 20% down payment is still required. Additionally, special cases, such as needing an alternative lender or buying a unique property like a seasonal cottage, may necessitate a larger down payment.

Conversely, if you can afford a 20% down payment, you will not need to pay for the insurance premium. You may also have the option to extend your mortgage term to 30 years, reducing your monthly payments. It's all about balancing what you can afford upfront with your ongoing monthly expenses.

Are you currently looking at homes and want to know what your premiums could look like? Have a look here, at my purchase calculator!