Canadian banks are required by law to insure “high ratio” mortgages against default. “High ratio” refers to mortgages with less than a twenty percent down payment. Default insurance is typically provided by companies such as Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty (CGI), or Genworth Canada. Insurers provide a safety net for banks by assuming all the risk involved with mortgaging a property.
Default insurance comes with a cost that the borrower is responsible for paying. The mortgage amount and percentage of down payment determines the fee you pay. The insurance premium can be added to the mortgage, so you do not have to pay it out of pocket.
When you decide to move to another home and sell your existing home, a lot of homeowners don’t know that they can “port” their default insurance fee. This is completely separate from “porting” your mortgage.
When you port your fee, you continue the same amortization and outstanding mortgage balance. There is no time frame that the port needs to take place, however, the amortization will continue to lower.
If you choose to increase the mortgage amount, the default insurance company will charge a top-up premium. This may save you from repaying the entire premium over which could save you thousands of dollars. There may be potential to increase your amortization to keep your new mortgage payment lower, but it is looked at on a case-by-case basis.
Any bank can inquire about the details of your default insurance premium and give you information on the potential savings if you “port” your default insurance to your next home. If your bank hasn’t given you the option to port your insurance fee, you may want to inquire about it.
Not every mortgage lender has the same knowledge when it comes to small details, such as porting a default insurance fee. Their knowledge of mortgage information can only come from experience.
To find out if your default insurance premium can be ported, speak to your mortgage lender. Keep in mind that it does not hurt to get a second opinion to make sure you are getting the proper advice. Moving can be a stressful time in your life, let us do all of the heavy lifting when it comes to your mortgage!