The Canadian housing market is undoubtedly very active these days. While there are predictions for home prices to drop this year, there are newly implemented mortgage policies that made it harder for individuals to buy new houses. The good old mortgage insurance or mortgage default insurance still remains as one of the most preferred tools to help fund a down payment for a home purchase. This is an amount that is added to the premium of a borrower on top of the payments computed from the mortgage principal.
Fundamentally, mortgage default insurance is meant to benefit both the borrower and the lender. The lender enjoys protection for his or her money in case the borrower defaults on the payments. The borrower benefits well because the insurance provides an avenue for the fast funding of the down payment for a home purchase.
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However, recent changes in the premium amounts which are to be implemented at the end of the first quarter of 2017 have got a lot of experts thinking against it. In fact, it is common to see real estate blog articles in the Canadian online domains recommending that borrowers avoid mortgage insurance today. Their reasons are enumerated below:
- The resulting monthly payments becomes too much of a burden for borrower: This is specifically true when the new premium amounts as amended are finally applied. A borrower will have to shell out lot of money per month for the added premiums. While these may be just few extra bucks, the total could reach thousands at the end of the amortization. Let us take for example a purchase with an asking price of $500,000 given a 6.8% down payment. If the mortgage amortization term is at current maximum of 25 years, the resulting mortgage insurance is $19,460. This money can already be used for other investments or household needs.
- Saving up for a down payment is more practical: This is of course true in reference to the current mortgage policies being implemented and the condition of the Canadian real estate market. A borrower should target the maximum down payment amount or more. This will lead to lower monthly payments and flexibility in budgeting. The Canadian government also has its ways of providing help to those who are aiming for home ownership. First-time buying privileges, subsidies, discounts, alternative saving systems, and more can be added to the options list of those who are trying to come up with down payment money.
There are many changes happening in the Canadian real estate market. Some of these may ultimately change the way that home buyers can finally acquire their dream houses. There are predictions of a drop in house prices but this is accompanied by restrictions on insured mortgage loans.
Mortgage insurance can speed up the home buying process. However, it should be noted that at the current times, more planning is required for those who want to avail of it. Taking a step back and saving up for a down payment should be strongly considered by a prospective homebuyer.
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