When applying for a mortgage financing, ever wondered what your Bank or Mortgage Broker was referring to when he/she said that you'll be requiring CMHC Mortgage Insurance?
Typically, mortgage loan insurance is required by lenders when you make a down-payment of less than 20% of the purchase price of the property. Mortgage loan insurance is meant to protect lenders in case you default on your mortgage payments. It also helps buyers purchase homes with a down-payment of a minimum of 5% at interest rates comparable to those with a 20% down-payment.
In order to obtain mortgage loan insurance, the lenders pay an insurance premium to CMHC. This cost is passed on to you. The premium is dependant on your down-payment. The lower the down payment, the higher the premium. The premium can be paid in a lump sum or added to your mortgage (therefore, included in your monthly mortgage payment).
Please do not confuse mortgage loan insurance with mortgage life insurance. Mortgage life insurance ensures your outstanding mortgage balance will not be a burden on your dependants/estate at the time of your death.