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Mortgage Default Insurance (CMHC)

Mortgage default insurance protects lenders, like banks, from losses in the event of a default on a mortgage by the borrower. It is required for all mortgages where the down payment is less than 20% of the property value. Based on the size of your down payment the Canada Mortgage Housing Corporation (CMHC), or other mortgage default insurance provider, calculates the total cost of the insurance as a percentage of your mortgage loan. Typically this is between 2.50% and 4.00% of the property value.

The total cost of the mortgage default insurance depends on the size of your down payment and the total value of the property. The greater the down payment the lower insurance cost, giving you an incentive to have a larger down payment. The insurance can be paid back in installments, sometimes combined with your mortgage payments, or in a lump sum.

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    Advantages of Debt Consolidation

    If you are in a situation where you have various debts with high interest rates or a difficult payment schedule you should consider debt consolidation. Paying off multiple different debts at a time can be a burden on your finances and wellbeing. Credit cards and various other unsecured loans have high interest rates and it can be difficult to juggle repayments. By combining, or consolidating, your debts with a secured loan or financial tool you can simplify your payments and make your debt burden more manageable while having a much lower interest rate on the loan. There are many advantages to debt consolidation, including:

     
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    Risks Involved

    Debt consolidation can be a very beneficial process to help you out of your debt situation, however there are some risks one should be aware of. When applying for a loan you generally need a favourable credit score, generally in the mid-600s, to be eligible for a suitable loan that has a low interest rate and an amount suitable for debt consolidation. If the interest rate on your new loan is higher than your existing debt then it is not a suitable choice. Debt consolidation requires financial discipline. If you improperly use your new loan or continue to accrue high interest debts on your credit cards you run the risk of increasing your debt. Similarly, the process of paying down your debts can take many years depending on your total amounts and requires long-term discipline. If you choose to go with a second mortgage or mortgage refinance for your debt consolidation you need to be aware of the associated costs and fees. Your lender or broker may charge you fees for processing new loans or for changing your existing agreements. If the fees and costs exceed the savings you would make then it is not suitable to proceed.
     

    Credit (HELOC)

    A home equity line of credit, or HELOC, is an excellent tool for debt consolidation. It is a second mortgage that provides a line of credit, allowing you to access the built up equity you have in your home. You can use or borrow from the HELOC on demand and then pay it back over time, similar to how a credit card works. Because a home equity line of credit is secured against your property it has a lower rate than unsecured loans and debts. Debt consolidation requires the combining of your debts into one package, so you can pay off your existing debts using your home equity line of credit which combines the amount into one place. You then take advantage of the lower interest rate and the simplified payment structure to pay off your debt.
     
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    Tips for Getting a Mortgage Default Insurance

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    What is Required for Mortgage Default Insurance (CMHC)?

    Purchasing mortgage default insurance is necessary for all property purchases that have less than 20% down payment but there are some additional requirements:

    • The maximum amortization period cannot exceed 25 years for insured mortgages
    • The minimum down payment required is 5% for properties valued less than $500,000.
    • If the property value exceeds $500,000 the minimum down payment is 5% of the first $500,000 and 10% of the amount exceeding that up to a maximum of $999,999.
    • If the property is valued at $1 million or more the down payment must be at least 20% and mortgage default insurance is not available.

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    Commonly Asked Questions

    Mortgage default insurance protects lenders from losses in the event of a default on a mortgage. This occurs when the borrower has defaulted the mortgage loan agreement. The cost of the insurance is typically between 2.50% and 4.00% of the property value and is added to the mortgaged amount.
     
    Based on the size of your down payment the CMHC or other mortgage default insurance provider calculates the total cost of the insurance as a percentage of your mortgage loan. The greater the down payment the lower insurance. It can be paid back in installments or a lump sum.
     
    The total cost of the mortgage default insurance depends on the size of your down payment and the total value of the property. Typical rates are between 2.50% and 4.00% of the property value. The lower the down payment the greater the cost of the insurance, giving you an incentive to have a larger down payment.
     
    The premiums paid on your mortgage default insurance are not refundable and should be factored into your total expenses for your home. If your home is eligible for the green rebate you may be able to receive up to 15% of your premiums back as a rebate.