Insuring your lender’s investment

In Canada, whenever you purchase a property and finance more than 80% of the purchase price you are required to purchase mortgage default insurance. This is generally purchased through one of two companies, either Canada Mortgage and Housing Corporation (CMHC) or Genworth. Mortgage default insurance protects your lender if you cannot pay back your mortgage; high-ratio loans are also high-risk loans, but the federal government wants to encourage new buyers to be able to get into the housing market without having to save a large down payment. Requiring mortgage default insurance allows lenders the comfort of knowing that their loans are protected while allowing borrowers the ability to obtain mortgages when they are looking for their first home.