5% Down Payment?

First-time home buyers who pay a down payment under 20% must have mortgage default insurance and yes, loans can be up to 95% of the purchase price. Mortgage insurance allows lenders to offer competitive rates and of course provides those with less cash the opportunity to buy a home. However, the insurance also takes the responsibility of the balance owing off the lender should you not be able to make payments. There are three companies in Canada which the federal government requires the lender to insure those mortgages with (a less 20% deposit): Canada Mortgage and Housing Corporation (CMHC), Genworth Financial and Canada Guaranty.

The CMHC is owned by the government and offers mortgage insurance that covers the total balance owing. Their website is a great resource for home buyers and home owners (planning to renovate). The site provides helpful planning calculators and a PDF downloadable list of CMHC approved lenders.

Genworth Financial Canada is the leading private provider of mortgage insurance and guarantees up to 90%. Their site offers helpful info for home buyers, including their Fall 2010 Homeownership Guide and mortgage calculators.

Canada Guaranty also offers a list of products based on a minimum 5% down payment, however in most cases equity must come from personal finances or can be a gift from a relative but not builder or Realtor incentives.

The cost of the insurance premium is usually included in the mortgage payments, however the total can be paid up front. The amount depends on the percentage of how much the loan covers the cost of the home. Note that provincial sales tax is added to the insurance cost but not the new harmonized sales tax. Mortgage default insurance differs from mortgage life insurance; an optional insurance that covers the balance in the event of untimely death.