What is mortgage default insurance and why does the bank require it?
By law, in Canada, our Canadian banks can only provide mortgage financing to qualified homebuyers with at least a 20% down payment, unless the mortgage is insured against default. Mortgage default insurance can help buyers purchase a home and begin building equity sooner, with less of a down payment. Default insurance may also be required when a borrower
has more than a 20% down payment, if the property is in a remote location or if the borrower is qualifying under a special program that is considered a higher risk.
Mortgage default insurance protects lenders in the event a borrower defaults on their mortgage. It does not protect the borrower or a guarantor. If a borrower defaults, the insurer may oversee all legal proceedings and payment enforcement and compensate the lender for its losses, should there be a shortfall after the property has been sold and expenses paid. The defaulting borrower remains responsible for any shortfall on the mortgage and the lender or mortgage insurer may pursue the borrower for any deficiency following sale of the property.
The three mortgage default insurance providers in Canada that are most commonly used are
- Canada Mortgage Housing Corporation (CMHC) https://www.cmhc-schl.gc.ca/
- Sagen https://www.sagen.ca/
- Canada Guaranty https://www.canadaguaranty.ca/
Please visit the insurer websites for details of the various mortgage default insurer programs.