What is Mortgage loan Insurance?
Mortgage loan insurance is often mistaken with life insurance of house insurance. But it isn't. Mortgage Loan insurance is a product that the lenders have to protect them in case of default by the Home owners. So, if you don't pay your Mortgage and the bank ask for their keys, they are Insured on their loss.
Who need the Mortgage Insurance?
If you buy a property and you have up to 19% down payment, you will need to have this insurance added to the Mortgage. This is not an out of pocket expense, it is added on the total Mortgage amount. The 3 Insurance companies in Canada are CMHC, Genworth and Canada Guaranty. If you are pre-approved for a Mortgage with your bank and then declined, most of the time it is because the insurers are not approving the Mortgage request.
If you have 20% down payment or more, you are not required to get Mortgage insurance. The bank take the whole risk and will assume the loss if ever it happens. This also mean that without the insurance, they will in some cases, increase the interest rate.
Mortgage insurance and Refinancing
In the past, Mortgage insurance was available on refinancing. With the new Government set of rules and Guidelines, Refinances cannot be insured. Therefore, rates are higher on refinance Mortgage than Purchase because then again the bank take all the risk. And they also take other bank debts to include them in one loan which is pretty risky for them if you think about it.