Mortgage insurance (or private mortgage insurance) is a form of insurance that provides lenders with protection against default. With the insurance, the lender bears less risk because the insurer will pay a claim to a lender in the event of a borrower’s default.
NB: Not all mortgage loans qualify for insurance. A loan must meet certain requirements established by the insuring body.
To determine whether you have to take out mortgage insurance or not, consider hiring the services of Ontario mortgage brokers. A broker should be in a position to tell you beforehand whether you will need to take out private mortgage insurance or not.
Mortgage insurance payment plans
Although mortgage insurance companies offer many premium payment options/plans, only three are worth considering.
The following are the three common mortgage insurance options available:
- Monthly premium
Here, you pay monthly premiums until the mortgage loan is paid down to 80% (sometimes 78%) of the initial appraised house value. After you have built up 20% (or 22 percent) equity in the house, the premium payments cease.
- Up-front mortgage insurance premium with rebates
With this payment plan, you make one payment upfront – which is added to the loan amount. If the loan is paid up within 5 years, you receive a partial rebate.
What happens here is that you owe the mortgage insurer a lump sum insurance premium. The lender making the loan lends you the money for the premium and sends the money to the mortgage insurer – to have the mortgage insured.
- Up-front mortgage insurance premium without rebates
Similar to up-front mortgage insurance premium with rebates but there are no rebates.
The most common premium payment plan is the monthly plan. Main reason – most borrowers do not know all the options available. Talk to Ontario mortgage brokers today for more mortgage insurance payment options.