Private Mortgage Insurance Easier to Get
For many years it was hard for borrowers to get PMI, or private mortgage insurance, but with home prices skyrocketing and lenders needing to do business, some of the requirements have been relaxed.
With a payment as little as 5% down, some buyers are able to get financed and to closing sooner – but is this really a good thing? Relaxed standards usually mean a housing market is stabilizing, and after the year of market shakeups that Canada has had this could be a good sign. Either way, here we’re going to discuss what the standards mean for both borrowers and lenders and what PMI really is and what it does.
What is PMI?
PMI, or private mortgage insurance, allows people who cant’ yet afford a home of their own to buy a house with little to no money down. Many mortgage rules stipulate that you need 20% at the minimum, and the more the better. With the new mortgage rules coming out of Ottawa many are being turned down for government backed mortgages and turning to private mortgage insurance as a way to secure their financing.
Many Canada mortgage brokers are reporting a clip in buyers with less money down using PMI to buy a home, but it all depends on where you’re at. Those in major markets are having to find jumbo loans that will be covered by PMI and that can take some work.
Hedging Your Bets, Against Yourself
When a borrower takes out PMI they may think that they’re doing something to protect themselves against foreclosure, but they’re not. This is protecting the lender alone, not the borrower. The borrower continues to pay until they’ve reached the minimum down payment (20% to 30% depending on the locality).
Half a Percent to a Percent
Most will pay between .05% to 1% each year in private mortgage insurance – which honestly isn’t that much to get a home and lock in low interest rates. Borrowers will need to keep on top of things as they pay down their debt, as it won’t automatically cancel itself. Once a borrower has reached the minimum cancellation amount (this is typically outlined in the contract but borrowers can always call their lender to find out how much it is) they will be able to cancel it. Some lenders require a verbal request to cancel the PMI, others will require it in writing or both.
How Much Does it Really Cost?
If a borrower is paying the minimum monthly payment it could take them years to achieve the amount of equity they need to quit paying private mortgage insurance. It’s imperative for borrowers to pay this off as quickly as possible; even lenders don’t benefit from borrowers paying PMI for an extended amount of time; that’s thousands of dollars each year that could be going towards interest payments instead.
Either way, private mortgage insurance is here to stay and as the rule changes aren’t changing any time soon, more Canadians will turn to PMI to help them finance a home.
Homebase Mortgages is a leading Toronto mortgage broker, which specializes in all types of mortgages ranging from home equity loans, second mortgages, private mortgages, mortgage refinancing, mortgage renewals, home mortgages and hard money lending. To learn more about mortgage options that are right for you, please visit them at: http://www.homebasemortgages.ca/
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