28 March 2013 ~ 0 Comments

Understanding Mortgage Loan Insurance – Guest Post

Mortgage for Maui Real EstateThis guest blog post is from Chris Landry, a trusted mortgage broker and good friend to us here at the Maui branch of the Hawaii Nature Center! Chris was also named on of Canada’s top mortgage brokers.

Check it out by visiting Chris Landry’s Mortgage Broker web page: Chris Landry - http://www.mortgagebrokernews.ca/files/image/Canada/pdf/Cover_Feature_for_Web.pdf

Mortgage loan insurance is often understood, yet many homeowners in Vancouver pay for it every month. Federally regulated lenders in Vancouver are legally required to have insurance for any loan that meets or exceeds 80 per cent of the purchase price of the home. Loan insurance is sometimes called mortgage default insurance.

This insurance protects the lender, not you. It covers any loss that may occur if you default on the loan. Unless your down payment is for more than 20 per cent of the buying price, you’re going to be paying the insurance. In most cases, the premium is added to your monthly mortgage payments. Mortgage broker Chris Landry or another mortgage broker from the VERICO Paragon Mortgage Group can explain more about your specific requirements.

In order to get an insured loan, you will not only have to be approved by the lender but also by the insurance company. Canada Mortgage and Housing Corporation and private insurers provide these policies in Vancouver. Approval requires meeting several requirements. These include an amortization term of 25 years or less and a minimum of five per cent of the total cost for down payment.

There is also a qualification known as the Gross Debt Service ratio. This ratio compares the monthly costs of owning the house against the gross household income. This ratio typically cannot exceed 39 per cent. The other ratio that is considered is called the Total Debt Service ratio. This ratio is computed by comparing the borrower’s total debt and the gross household income. The debt level should be below 44 per cent of the household income.

Since 2010, these ratios have used the rates from a five-year fixed mortgage in their calculations, even if the loan itself is a variable rate or for fewer than five years. Five-year fixed rate mortgages are the most popular loans in Vancouver, but for those who opt for other loans this rule may prevent them from taking out a loan that they cannot repay if the rate rises. This also means, however, that borrowers may not qualify for as much of a loan as they would before this law changed.

If you are considering taking out a home loan in Vancouver or want to find out more about how loan insurance may affect your chances of being approved for a home loan, contact Chris Landry at VERICO Paragon Mortgage Group today. You can check out Chris Landry mortgage broker’s website for more information about him!

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