High-Ratio Mortgage Insurance
Purchasing a home with less than 20% down? Find out what steps are next
When you want to buy a house, getting a mortgage loan through a Mortgage Broker is the way that most people should go. Before you get a loan to purchase a home, you need to understand that mortgage loan insurance will be required by lenders if you have less than 20% down payment.
This loan insurance is needed because it protects the lender in the event of a default by you on the mortgage payments, and there is a deficiency in the sale. This insurance is not like all other types of insurance due to the fact that a premium payment is paid once upfront, and can be added to the mortgage.
The amount that you pay can vary somewhere between 0.25% to 3.75%. The amount you pay will depend on the amount of the mortgage required and the amount of down payment you have. One important thing to remember is that the larger the down payment you can make, the less you will pay in upfront insurance premiums. If you can make a 20% down payment then this will mean you will not require mortgage insurance. Some lenders will still insure your mortgage which makes it easier to sell in the financial markets, but will not charge the borrower any insurance premiums.
The lenders have to protect themselves from default and possible deficiency in the sale of the home and the smaller the down payment, the more likely there will be a deficiency in the sale price or, in easier terms, there will not be enough money to cover the outstanding mortgage balance. This will allow them to recover all of their money and that is why insured mortgages are easy to sell to investors
Most of the time when you purchase a home, the down payment that will be needed for you to get into your new home will depend on your credit. If you have really good rating then it is possible for you to get in with only a 5% down payment; the weaker the credit the higher the down payment required which will shrink the risk that the mortgage insurer will have on your mortgage.
Always ensure that you pay your bills on time to be sure you have good credit, or expect to pay the higher down payment and insurance costs every month.
One last thing it is essential to know, is that this insurance can be paid upfront or added to the mortgage. If you choose to add it to the mortgage, the actual cost of that insurance rises substantially as that amount is now amortized over 25 years plus and interest is paid on that amount.
Talk to Paul Mangion, your local mortgage specialist, about options and strategies that can save you money!