Save this Spring on Mortgage Loan Insurance

The Spring Market is Up and Running

You can save money if you buy a home during the month of April. That’s because mortgage loan insurance rates are scheduled to increase as of May 1st, 2014.

When is Mortgage Loan Insurance Charged?

Typically mortgage Loan Insurance is charged on mortgages that have a loan to value ratio of more that 80%. Simply stated, if the Purchase Price of a home is $225,000 and the down payment is 5%, then the loan to value ratio is 95%--provided the home is valued at the purchase price.

The insurance protects the lender’s mortgage against default yet is payable by the home buyer. Usually the premium is added to the mortgage amount and is amortized over the life of the mortgage.

As well, the premiums are subject to provincial sales tax in Ontario that cannot be added to the loan amount and is payable on closing.

Example:

Let’s stay with a purchase price of $225,000. The mortgage has a 5-year term and is amortized over 25 years; the interest rate is 3.25% and the down payment is 5%.

Cost Prior to May 1st is 2.75% of Mortgage:

Purchase Price of Home:                       

$225,000

Less 5% Down Payment:                        

  $11,250

Mortgage Amount:                                  

$213,750

Plus 2.75% Insurance Premium:                 

    $5,878

Total Loan Amount Amortized:               

$219,628

On $219,628 the monthly payment is about $1,067.76.

Cost as of May 1st is 3.15% of Mortgage:

Purchase Price of Home:

$225,000

Less 5% Down Payment:

  $11,250

Mortgage Amount:

$213,750

Plus 3.15% Insurance Premium:

    $6,733

Total Loan Amount Amortized:

$220,483

On $219,628 the monthly payment is about $1,071.91

That’s a payment increase of about $4.15 per month, and an increase in provincial sales tax of $68.40.

       How Some of the Rate Changes Compare:

%'age of Mortgage

Current Premium

Increase on May 1st

Up to & including 80%

1.00%

1.25%

Up to & including 85%

1.75%

1.80%

Up to & including 90%

2.00%

2.40%

Up to & including 95%

2.75%

3.15%

* Century 21 newsletter April 2014 - Eugene Pilato

Barbara Scarlett

Barbara Scarlett

Sales Representative
CENTURY 21 Today Realty Ltd., Brokerage*
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