What is Mortgage Default Insurance?
When you purchase a home with less than 20% down your mortgage must be insured by one of three insurance companies (CMHC, Sagen (formerly Genworth) or Canada Guaranty). The cost of the insurance and the lending guidelines are generally the same between all three companies, with the difference being that CMHC is a publically owned corporation while Sagen (formerly Genworth) and Canada Guaranty are private corporations. In certain circumstances, mortgage default insurance can sometimes be required for mortgages with a down payment larger than 20%, but this is not the norm.
The purpose of mortgage default insurance is to protect the mortgage lender from any losses should there ever be a foreclosure. You (the borrower) pay the insurance premium (it is added to the total amount of your mortgage so you don't have to pay for it out-of-pocket) but the insurance protects the lending institution in the event of a foreclosure.
Here is a link to CMHC's website explaining the cost of their insurance (the insurance is required if you put less than 20% down).
The insurer always has the final say on a file; so, even once you have been pre-approved by a lending institution, the insurer will not review your file and will not receive a copy of your information until there is an offer in place on the home as the insurers do not review pre-approvals. I work hard and do my very best to anticipate the decision of the insurer ahead of time by attempting to verify your information at the time of pre-approval as well as insuring that you qualify using the insurers' current lending guidelines. The purpose of a pre-approval is to attempt to identify and mitigate most issues ahead of time to avoid any surprise decisions by the insurer after you've written an offer on a home.
Please contact me for more information on mortgage default insurance!