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A 20% down payment should eliminate the need for mortgage loan insurance
Q: MoneySense says that a 20% home down payment waives any mortgage loan insurance premium. However, when I enter a purchase price of $250,000 with a down payment of $50,000 on the CMHC’s website calculator it gives me a mortgage insurance premium of $2,500, not $0. What gives?
—Jonathan Kuzub, Ottawa
A: As you rightly point out, a down payment of at least 20% of the purchase price should eliminate the need for mortgage loan insurance. I tried both the CMHC and Genworth calculators with an even more dramatic example—a down payment that covered 80% of the purchase price—and it still showed that I would have to pay insurance of $300. The CMHC disclaimer states that, “This calculator will return a premium amount regardless of the down payment amount entered.” The reason is that many lenders will still purchase mortgage loan insurance on homes with a down payment of more than 20%—they just don’t pass on the cost to the borrower. I personally think the calculator would be more useful if the algorithm used an “if/then” statement to eliminate this confusion. In any event, you earn lots of good karma for pointing this out and reminding us that these types of calculators are not always clear.
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