Determining how much you’ll pay for mortgage default insurance can be confusing. The premiums are calculated according to risk. The higher the perceived risk of the mortgage application, the higher the default insurance premium will be. There are a number of different factors that are taken in to consideration when risk is determined:
- the amount you have for your down payment (the higher the down payment, the lower the risk to the lender)
- the source of your down payment (if borrowed funds are required, it will be considered higher risk)
- the income verification (if it’s a stated income application, it will be considered higher risk)
- the location of the property (ie. if it’s remote, the lender considers it higher risk)
- the size of the property (if the property is very small, or very large for the area, it will be considered higher risk)
- the credit strength of the application
In order to minimize any potential loss, lenders and insurance companies want stable borrowers, who are buying average properties. If a borrower is not able to pay their mortgage, they want a property that will sell quickly and won’t sit on the market for a long period of time.
Here are the premium rates for Genworth, CMHC and Canada Guaranty if you’d like to have a look. If you want to know more about how charges are calculated, click here.