mortgage insurance

[TRueter]

hi all,

i checked the RFD forums and the CMHC site and could not find an answer..can anyone tell me if mortgage insurance can ever dropped if you were required to pay it at the time of the acquisition. I.e. let's say I buy a house today, putting only 10% down, and therefore am subject to mortgage insurance payments -- is this premium removed after I build up 20% equity or does the insurance premium continue indefinitiely?

thanks

[JWL]

Your CMHC mortgage insurance premium is paid once when you get the mortgage. It is often included in the mortgage amount and becomes part of your payments.

If you also purchased life insurance on the mortgage, you can drop that any time you like. It has nothing to do with the equity you have.

[TRueter]

I am referring to mortgage loan insurance that protects the lender (bank) lending you the money - not life insurance. As I understand it, any downpayment less than 20% of the purchase price is subject to this premium. My question is whether or not the lender will no longer take out insurance on my mortgage once I build up the magic 20% equity in my home, effectivelty reducing my mortgage payments. Does this differ by bank/lender or is there a general rule to this effect? cheers

[ebizimage]

On your next mortgage renewal, if you are still under 20%, you would have to pay that mortgage insurance again, but you can request an appraisal, and your property value might have increased, so your loan portion might be slightly less in comparison to make it 20%.

[TRueter]

many thx

[Losmir]

I think JWL had it right...

There will be no magical reduction in your payments once you hit 20% equity. You normally pay the mortgage default insurance once by adding it to the principal amount fincanced and it is amortized over the full loan term. That means that you will be paying for the insurance until you pay off the loan.

[gman]

On your next mortgage renewal, if you are still under 20%, you would have to pay that mortgage insurance again, but you can request an appraisal, and your property value might have increased, so your loan portion might be slightly less in comparison to make it 20%.

I don't think it is how that works. You can consider the mortgage loan insurance as a tax if your down payment is less than 20%. You pay that up front once (as part of the mortgage) and it will not ask you again for more.

[pitz]

Yeah you don't pay for mortgage insurance more than once, even if you change lenders, irregardless of whether your loan is less than 80% LTV or not.

The chief advantage of having an uninsured loan is that the bank is allowed to extend additional credit against either the 'appreciation' (if any), or the accumulation of equity that naturally would occur during mortgage paydown.

On a CMHC insured mortgage, the banks cannot offer you a housing-secured line of credit, except as, perhaps, a second mortgage (which will be really expensive since second mortgages are high-risk assets).

Basically this makes the Smith Manouevre or similar off-limits until your house is well enough capitalized.

[pitz]

I think JWL had it right...

There will be no magical reduction in your payments once you hit 20% equity. You normally pay the mortgage default insurance once by adding it to the principal amount fincanced and it is amortized over the full loan term. That means that you will be paying for the insurance until you pay off the loan.

True.

But once you hit 20%, then you will be eligible for a traditional mortgage with an attached line of credit.

So, in theory, you could stop contributing equity to the mortgage, simply by using the line of credit to make the 'principal' portion of the mortgage payment.

This would lower your monthly cash outlay, but you wouldn't accumulate any equity unless house prices continue to defy gravity.

Or if you lose your job, you could pay the mortgage with the LOC as a form of equity withdrawal. If you were in a CMHC-insured mortgage, you would either have to resort to a very expensive 2nd mortgage, expensive refinancing, or you would get foreclosed upon in similar circumstances.