Homebuyers have two basic options to consider: conventional mortgages, which require at least a 20 per cent down payment; and high-ratio mortgages, which are designed for people who do not have the 20 per cent down payment. Borrowers with high-ratio mortgages are required to purchase mortgage default insurance.
Mortgage default insurance, commonly referred to as mortgage insurance, provides lenders the flexibility to offer borrowers who have a low down payment the same competitive interest rates available to homebuyers with a larger down payment. It guarantees the mortgage by protecting the lender, should the homeowner be unable to continue payments for some unforeseen reason.
The insurance premium is added to the value of the mortgage, and the monthly payment is increased accordingly.
“Mortgage insurance is what allows a large part of the population to access homeownership sooner,” says Debbie McPherson, senior vice-president of sales and marketing at Genworth Canada. “Our priority is to provide first-time homebuyers with the information they need to make good decisions and achieve their homeownership goals.”
Genworth Canada is one of three providers of mortgage insurance in Canada, along with CMHC and Canada Guaranty.
While the mortgage insurers’ relationship is primarily with lenders, borrowers should still take an interest in who is insuring their mortgage and understand the additional benefits that company provides. Genworth Canada offers a Homeowner Assistance Program to help homeowners who are experiencing temporary financial difficulties that put them at risk of defaulting on their mortgage payments.
“Our Homeowner Assistance Program applies in situations where there is light at the end of the tunnel, where we believe the borrower will be able to start making payments again,” Ms. McPherson says. Sudden job losses, illness or personal life changes such as divorce could qualify. Working with the lender and the homeowner, Genworth Canada attempts to work out a solution—perhaps capitalizing arrears, deferring payments, making partial payments or increasing the amortization. The key, Ms. McPherson adds, is for the homeowner to recognize the situation and approach the lender or insurer early on.