Here's what you need to know about Mortgage Default Insurance
At TD Canada Trust, we are required to make sure that our mortgage customers and the general public are told the facts about mortgage default insurance: what it is, when it is needed, how it is calculated, and other important details that affect homeowners.
What is Mortgage Default Insurance? It is a type of insurance that enables qualified borrowers to purchase homes with a down payment of as little as 5% (an additional down payment is required for Stated Property Values greater than $500,000). It also provides a "safety net" for federally regulated financial institutions like TD Canada Trust that lend out money on the security of residential real estate, and increases the number of Canadians who may be able to qualify for mortgages.
When you are approved for a mortgage that requires mortgage default insurance, you have the choice of either paying the default insurance premium amount up front or adding it to the principal portion of your mortgage.
Mortgage borrowers can see the amount of their mortgage default insurance premium by looking at their TD Canada Trust Mortgage Loan Agreement. From time to time, the company providing the insurance may amend the calculations for the premiums. In that case, because of timing, this document may not reflect the most current percentages. However, your Mortgage Loan Agreement will always reflect the correct premium amount. Depending on your province of residence, you may be charged a provincial sales tax on the mortgage premium amount, which you are required to pay. As of June 1st, 2015 the following provinces charge a sales tax on the mortgage premium amount: Ontario, Quebec and Manitoba.
Financial institutions, like TD Canada Trust, that charge borrowers for mortgage default insurance must fully explain the coverage to mortgage borrowers, including who is protected by the mortgage insurance, and who pays for it.
At TD Canada Trust, we cannot lend our customers more than 80% of the value of their residential property unless the mortgage is insured against default. The borrower pays for this insurance (and any applicable sales tax).
Mortgage default insurance helps protect TD Canada Trust should a customer default on a mortgage. A mortgage is generally considered to be in default if a payment is not made on the scheduled due date, but there are other situations when a mortgage may be in default. If a property is sold as the result of a mortgage default but the sale does not generate enough money to pay the outstanding balance and all associated costs, fees and interest, the insurer will pay the shortfall to TD Canada Trust and will then have the right to enforce against each borrower personally for the deficiency.
Financial institutions that charge borrowers for mortgage default insurance must also explain how the insurance premium amount is calculated and charged.
At TD Canada Trust, we are required to provide specific information about mortgage applications to the companies that provide mortgage default insurance. This information is used by the mortgage insurer to calculate the premium amount that is charged to the borrower. This information includes:
- Stated Property Value
- Loan Amount
- Loan to Value (LTV) ratio
- Amortization Period
- Employment Status
The company providing the insurance will calculate the premium amount and inform us of the amount. We then pass on that charge to the borrower. In all cases, the default insurance premium amount charged to TD Canada Trust by the insurer, plus any applicable sales tax, is the amount charged to the borrower.
TD Canada Trust deals with two mortgage default insurers – Canada Mortgage and Housing Corporation and Genworth Financial Canada. We do not receive any benefits or payments from either company and we do not have any arrangements that require disclosure to borrowers.
Here is how your insurance premium is calculated
| Mortgage information passed on to the insurer | What it means |
|---|---|
| Stated Property Value | Lesser of purchase price or property value, as provided by you |
| Loan Amount | Amount you want to borrow: |
| Loan to Value (LTV) ratio | The maximum LTV ratio for Stated Property Values over $500,000 is: (a) 95% for the amount up to $500,000 and (b) 90% for the amount over $500,000. |
| Amortization Period | Time required to pay off the mortgage, assuming the same interest rate throughout the entire duration of the mortgage |
| Employment Status | Employed or self-employed with third party income validation, or self-employed without third party income validation |
Default insurance premium rates effective for mortgages approved on or after March 17th, 2017 :
| LTV ratio | 25-year amortization period | |||
|---|---|---|---|---|
| Owner-occupied properties | Rental Properties(2-4 units)** | Cottage Properties* | ||
| Percentage charged on Loan Amount for employed/self-employed borrower with third party income validation | Percentage charged on Loan Amount for self-employed borrower without third party income validation** | Percentage charged on Loan Amount for employed/self-employed borrower with third party income validation | Percentage charged on Loan Amount for employed/self-employed borrower with third party income validation | |
| Up to 65% | 0.60% | 1.50% | 1.45% | 1.45% |
| 65.01% - 75% | 1.70% | 2.60% | 2.00% | 2.55% |
| 75.01% - 80% | 2.40% | 3.30% | 2.90% | 3.15% |
| 80.01% - 85% | 2.80% | 3.75% | Not available | 3.50% |
| 85.01% - 90% | 3.10% | 5.85% | Not available | 4.35% |
| 90.01% - 95% | 4.00% | Not available | Not available | Not available |
| 90.01% - 95% and non-traditional source of down payment | 4.50% | Not available | Not available | Not available |
| *These percentages apply to purchases of cottage properties that may not be accessible year round, or are accessible year-round but do not meet insurer's standard property criteria. **Single rental units are not eligible for insurance | ||||
If the amount of your mortgage results from combining an existing insured mortgage with new money, then the insurance company will combine the information from the existing mortgage and use the premium tables shown here to calculate the premium amount. The insurer may determine that a premium credit is available
Here are default insurance premium rates offered by insurers when there is an increase on the borrowed amount, and the original loan amount required mortgage default insurance effective for purchase mortgages approved on or after March 17th, 2017. The insurer may determine that a premium credit is available. This rate is charged on the new money:
| LTV ratio | 25-year amortization period* | |||
|---|---|---|---|---|
| Owner-occupied properties | Rental Properties(2-4 units)** | Cottage Properties* | ||
| Percentage charged on increase to Loan Amount for employed/self-employed borrower with third party income validation | Percentage charged on increase to Loan Amount for self-employed borrower without third party income validation | Percentage charged on increase to Loan Amount for employed/self-employed borrower with third party income validation | Percentage charged on increase to Loan Amount for employed/self-employed borrower with third party income validation | |
| Up to 65% | 0.60% | 3.00% | 3.15% | 2.90% |
| 65.01% - 75% | 5.90% | 6.50% | 3.45% | 6.10% |
| 75.01% - 80% | 6.05% | 7.00% | 4.30% | 6.40% |
| 80.01% - 85% | 6.20% | 7.50% | Not available | 7.00% |
| 85.01% - 90% | 6.25% | 9.00% | Not available | 7.60% |
| 90.01% - 95% | 6.30% | Not available | Not available | Not available |
| 90.01% - 95 % and non-traditional source of down payment | 6.60% | Not available | Not available | Not available |
|
0.6% premium surcharge on the above percentages may be added by the insurer when amortization on the existing mortgage is blended with that of the new money.
* These percentages apply to purchase of cottage properties that may not be accessible year round, or are accessible year-round but do not meet insurer's standard property criteria. ** Single rental units are not eligible for insurance. |
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