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ALBERTA REAL ESTATE • ALBERTA TRAVEL GUIDES • TRAVEL MAPS
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Conventional Mortgages
The rule for a conventional first mortgage is to allow a person to borrow up to 75 per cent of the value of the lot and house. The borrower will therefore have to supply at least 25 per cent of the value to borrow 75 per cent.
High Ratio Mortgage Loans
Many conventional lenders provide high ratio mortgage loans. In high ratio loans, the lender will insure the mortgage against investment loss if the borrower defaults under the mortgage and the lender suffers a loss as a result.
Mortgage Loan Insurance
Insurance against investment loss should not be confused with life insurance. It is not the borrower who insures against liability to the mortgage company, but the mortgage company that insures against loss in the event of default or loss under the mortgage. The best-known mortgage insurance companies are the Mortgage Insurance Company of Canada (MICC) and the Canada Mortgage and Housing Corporation (CMHC).
Canadian law requires a lending institution to place an insurance policy on a loan that has an advance of more than 75 per cent of the value of the land (purchase price or appraised value, whichever is lower). The fee for this is at the buyer's expense, and is usually added to the amount of the advance.
Mortgage insurance enables the conventional lender to lend more than the conventional 75 per cent of the value. MICC and CMHC currently allow the following amount to be borrowed based on appraised value for single detached houses, duplexes, and condominiums that are purchased for owner occupation:
- 95 per cent of the first $180,000
- 80 per cent of the balance
Lenders feel confident about making loans for 90 per cent (or 95 per cent for qualified first-time home buyers) of the value of the property when borrowers buy mortgage loan insurance. An insurer of mortgage loans, such as CMHC or GE Mortgage Insurance Corporation, reduces the risk of lending money to home buyers.
More than 2.7 million Canadians own homes today because they were able to insure their mortgage loans with CMHC and present themselves to lenders as low-risk investments.
Home buyers who require mortgage loan insurance obtain it through the lender as part of the process of taking out a mortgage.
- There are two costs to buying mortgage loan insurance:
- The application fee of $235 is an upfront direct cost. This is paid to CMHC by the borrower.
- The mortgage insurance premium is added to the mortgage amount or can be paid as a lump sum. It is based on a percentage of the mortgage amount.
The following table outlines the premiums that are applicable based on the degree of risk involved as determined by the Loan to Value Ratio.
First time homebuyers
For all but first-time home buyers, the maximum amount that will be advanced is 90 per cent of the property value. At least 10 per cent of the property value must come from the borrower's own resources.
Qualified first-time home buyers can take out an insured mortgage of up to 95 per cent of the property (or the purchase price, whichever is less). This is subject to a maximum house price of $180,000 in Calgary.
This information was provided by RE/MAX House Calgary.
Other financial information:
Mortgages |
Mortgage types
Mortgage funds from your RRSP |
Glossary of terms
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