An insurance that covers a lender’s risk which is linked with financial loss (normally occurring when the person is unable to pay mortgage loan) is known as the CMHC’s Mortgage Loan Insurance. CMHC stands for Canadian Mortgage and Housing Corporation. Such non payment of loans increases the demand of this insurance under the best interest rate. The amount of the premium paid under this insurance can vary between 0.65% and 2.74% depending upon the proportion of the buy price or the home value is invested with the mortgage loan. With the help of CMHC Mortgage Loan Insurance, one can be the owner of the property by paying a down payment which can be as low as 5% of the purchase price. It is a good idea to make a down payment of five percent as a minimum of the residence price, but it also depends on the property price –
• For a solo family and two unit residence – minimum five percent down payment is required.
• For up to a four unit residence – minimum of ten percent down payment is essential.
But it should be remembered that only Canadian citizens can apply for CMHC Mortgage Loan Insurance.
CMHC Mortgage Loan Insurance has many advantages –
1. It can be applied to various kinds of housing.
2. It is available everywhere in Canada.
3. It has several flexible products and options to help the buyer in going for the best investment.
In a normal case, the buyer pays the minimum down payment. Sometimes, first time homebuyers receive gifts from the relatives for the down payment. Any promotions offered by the lender and money borrowed from friends and family is acceptable as additional sources of down payment for the borrowers through CMHC’s Flex Down product.
Before applying for CMHC, a person should keep following points in mind –
• The qualifying criteria
• Is the lender approved by CMHC?
• The total housing cost including Principal amount, Interest accrued, property tax and heating costs (P.I.T.H.) should not be more than thirty two percent of the gross household income.
• The total debt should be less than forty percent of the gross income. To get the Total Debt Service (TDS) ratio add up the P.I.T.H. and payments on all other debt / gross annual household income and 50% of condominium fees (if applicable).
• Take the closing cost (like the lawyer fees, adjustments, land transfer tax if applicable, PST and GST as applicable etc.) into account. This is usually two to four percent of the purchase price.
• There are certain details which may vary from case to case and one needs to get in touch with the lender to know about them.
The premium of the CMHC Mortgage Loan Insurance is based on the amount of the down payment made and is proportional to the cost of the house or the value that one borrows. The higher the value of the house the higher will be the insurance premiums. This insurance is paid by the lender, who later passes on the charges to the actual buyer.
So, in order to pay less interest rates and avoiding the administrative charges, one should go for the mortgage insurance.
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