Mortgage Default Insurance (CMHC, Genworth, Canada Guaranty)
Who they are and what they do:
Within the Canadian mortgage industry almost all mortgages for client purchases where clients have less than 20% down payment are insured against default for the lenders by one of the major mortgage insurers. The mortgage insurers are CMHC, Genworth, and Canada Guaranty.
As a purchaser, which insurer insures your mortgage generally doesn’t matter to you as they all have the same premium charges and are really second and third looks at each other. The insurers do have a couple of unique programs and some have more common sense decision making processes than others but from a purchaser’s perspective, rarely do you become involved in the insurance process.
How the lending system works:
How the system works is from the broker channel we put together our client’s mortgage and submit it to the lender for approval. For this example lets say we submit to TD bank. TD underwrites and approves your mortgage then they see that you have less than 20% down payment and as such they submit to a mortgage insurer for insurance approval. Lets say they submit to CMHC and CMHC reviews your approval and has an issue with one of your mortgage building blocks (down payment, credit, income, or your new home value or condition of the home) and they decline your approval. CMHC then sends the decline back to TD and although TD has approved you internally it does not matter as they require the CMHC insurance in order to lend so in turn TD also has to decline you.
Behind the scenes the Canadian mortgage system is very standardized as all of the banks and trust companies must abide by the insurer guidelines in order to approve your mortgage with less than 20% down payment.
Alternative insurance strategies:
With our above example TD has declined us due to CMHC’s decision, you would receive the same decline answer from any bank or trust company that you approached who went to CMHC as the system is standardized for all lenders.
Currently most banks send to CMHC as their default and in many cases will not send to any other insurers once they receive a decline from CMHC. As brokers we are able to add value to our clients as we have the option of sending to other lenders on your behalf to receive a potential approval from one of the other two mortgage insurers.
Mortgage Insurance Pricing:
Once we receive your mortgage insurance approval, the lender essentially has no risk in approving your mortgage as they are fully insured. This is why within Canada we are able to offer our clients the same rates regardless of the down payment amount.
The insurer will add an insurance premium onto your mortgage on a tiered basis as follows:
90.1% – 95% loan to value: 3.60%
85.1% – 90% loan to value: 2.40%
80.1% – 85% loan to value: 1.80%
For example if you had a $200 000 mortgage at 95% loan to value, after the insurance premium of 3.60% of your mortgage amount is added you would end up with a mortgage of $207 200.
Please feel free to contact us with any questions via phone, online contact form, or by applying online and we would be happy to work with you on your new mortgage approval.