All the Mortgage Insurers have similar "5%" programs, or high-ratio mortgages. Insured through Mortgage Insurers, the mortgage is guaranteed for home buyers who need a high ratio mortgage (over 80%). The insurance premium that is paid to the Mortgage Insurer is to protect the lender in the event that the mortgage is not paid. This program is not the same as life, disability or job loss insurance. The principal benefit to the borrower, is that it allows you to purchase a home with a minimum down payment. This program is often used by first-time buyers who could not afford a conventional 20% down payment.
The 5% down payment on a $175,000 house or condo, for example, is just $8,750.
An application must be submitted on your behalf to the Mortgage Insurer. Upon receipt of the application, the Mortgage Insurer undertakes to determine the lending value of the property, which may or may not include an actual inspection or appraisal of the property.
The Mortgage Insurer also requires that the home-related expenses (Gross Debt Service or GDS ) must not exceed 32% of your gross household income, and that your total monthly debt load (Total Debt Service or TDS) must not exceed 40% of your gross monthly household income. You must also be able to pay closing costs equivalent to 1.5% of the purchase price.
To calculate the TOTAL DEBT SERVICE (TDS), use the formula below:
TOTAL MONTHLY DEBTS (Mortgage + all other debts)
DIVIDED BY MONTHLY INCOME = TDS
In some instances, it may be necessary to insure a mortgage, even though it is not considered high ratio. This is also reflected in the chart below.
| Loan to Value Ratio |
Premium |
| 1.0% to 65% |
0.50% of mortgage |
| 65.1% to 75% |
0.65% of mortgage |
| 75.1% to 80% |
1.00% of mortgage |
| 80.1% to 85% |
1.75% of mortgage |
| 85.1% to 90% |
2.00% of mortgage |
| 90.1% to 95% |
2.75% of mortgage |
The mortgage insurance premium may be paid in full on closing or added to the mortgage amount. If added to the mortgage amount, interest is then paid on the insurance premium over the amortization of the mortgage. Most people opt for paying over the period of the mortgage rather than being saddled with a lump sum on closing.
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