As anyone who has bought a home in Canada knows, if you don’t have a 25% (or more) down payment, you have to add the cost of mortgage insurance to your mortgage. Recently the Canadian government raised the threshold for mandatory mortgage insurance to 20%. That means you can now get "conventional financing" with a 20% down payment.
What does this mean to the average buyer? Well, about a $2500 savings for a borrower with a $250,000 mortgage that represents up to 80% of the home’s value.
In the U.S. the cut off is 80%, putting us on equal footing.
This also means it will be easier to get a larger mortgage since lenders can be more flexible when a buyer is putting down 20%, where previously there were stringent guidelines for anything below 25%.
Previously, those borrowing 80-85 per cent of the purchase price pay a premium of 1.75 per cent of the amount borrowed. I did not find any information about a rate change for other ratios, so I will assume they remain at 2.0% on 85-90%, 2.75% on 90-95%, 2.9% on 5% down and 3.1% if they have no down payment. I will update you if I find something different.
While the insurance premium is a one-time charge, it is typically added to the mortgage amount and subject to compounding interest.
