Mortgage Insurance In Canada Overview
Mortgage Insurance In Canada Overview
Mortgage Insurance In Canada OverviewMortgage loans are lent to people to help them finance the personal possession of the real property. The lender advances the money to acquirer of loan and that person has to pledge some of his assets as security. The borrower gets the payments in the pre-decided periods of time and then has to return it with interest. The interest rates may or may not vary over the loan life depending upon the type of the mortgage loan. If the loan is fixed rate mortgage, then the interest rate remains constant for the entire loan life, and if it is adjustable rate mortgage, the interest rates float in accordance with the market indices. The features of the mortgage such as its maturity, interest rate and method of repayment may vary significantly. It is to be kept in mind that mortgage is not the debt on the borrower; it is the security interest of the mortgagee.
As mentioned earlier, the borrower gives a lien of property as collateral for the security of the lenders money, it means if the borrower fails to repay the lender the total amount of loan in the specified term time, the lender has the right to auction the collateral. Many a times the collateral is not enough to cover the lender's cost of funds; this is where mortgage Insurance comes.
Lender's Mortgage Insurance (LMI) is the insurance billed to lender as the security of his investments. It is the insurance to pay off the losses in case the borrower fails to repay the loan in the due time and the property set as collateral fails to cover the loss. Mortgage insurance has its specified rates as well and the most common rates are $55 per month over the finance of $100,000, and $1,500 per year for a typical $200,000 loan.
There are two types of mortgage insurance; one is private mortgage insurance and other is public mortgage insurance.
*20% or less fee is required to be disbursed at time of acquiring loan for a private mortgage insurance and the rate of interest per annum varies. These charges may be paid on monthly basis, per annum basis, or they can be paid in lump sum or split payments.
*A new kind of insurance is known as traditional mortgage insurance. Generally, any insurance company provides this insurance and like mentioned in the name, it is charged to the acquirer of the loan. This insurance though provides the borrower the mortgage without paying down the 20%.
*Lenders-paid private mortgage insurance is the same as the BPMI but it is paid by the lender. Generally, LPMI is involved where insurance for high loan-to-value loans is not necessary.
*Federal Housing Authority (FHA) offers the public mortgage insurance at receipt of 1.75% of advance amount . This amount is paid by the borrower.
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