Home Title Insurance- Mortgage Loan Insurance
Not everyone is an expert in the home buying process; there will be many questions and concerns that arise during your purchase. This section will offer advice from experts in the industry regarding various topics that will be of interest when buying a home
Home Title Insurance
Do you need it?
The phrase “home title insurance” is becoming more common in Canada these days, as the concept catches on with home buyers and their lawyers. Simply put, home title insurance is a policy of insurance that protects the buyer and/or mortgage lender against loss or damage sustained if a claim covered under the policy terms is made. These terms typically involve defects in the title or survey that might affect your right of ownership and ability to resell the property.
This includes unpredictable or undetectable issues such as conflicting interests or ownership of the land, and mortgages or other encumbrances affecting title. Plus, this insurance covers compliance risks such as noncompliance with new restrictive covenants, the existence of work orders, and major encroachments, as well as access-related problems due to right-of-way or easements or other defined rights and defects. Other issues that are covered include fraud and missing heirs.
- Title insurance transfers the risk associated with title from the home buyer, lending institution or lawyer to the title insurer. If a problem with title is discovered after closing, the title insurer may rectify the problem or compensate the holder of the policy, as long as that type of problem is covered by the policy.
A title insurance policy contains:
- Risks or losses the policy will cover
- Risks or losses the policy will not cover
- General terms governing the insurance coverage
What does “Title” mean?
Title is a legal term that refers to ownership of a property. As a home buyer, you want to be sure you own the property and have the right to convey it to someone else at a future date.
Prior to your home closing, public records are searched to determine the previous ownership of, and dealings relating to, a property. For example, there may be an existing mortgage on it, liens for outstanding taxes, etc. The property should be free of these items at closing. Occasionally, defects regarding the title are discovered after closing, or are not handled before closing, which can at some future date negatively affect the marketability of the property, or even cost the buyer money to remedy. For example, if the property was conveyed to the previous owner fraudulently, the real owner may demand his/her rights of ownership. Other risks that may be covered under the policy include the forced removal of existing structures on the property, unregistered rights-of-way, and zoning and set back non-compliance.
Generally, there are certain types of risks that are not to be covered, such as environmental hazards, native land claims, and problems agreed to in the purchase agreement or failed to disclose to the lawyer. Discuss with your lawyer what risks are and are not covered, as well as the parameters of the policy, which remains in effect as long as the insured buyer, or their heirs, retain title to the land. Title insurance is available for resale homes, condominiums, cottages, rural properties, residential rental properties up to four units, and farms.
Do I need title insurance?
Mortgage fraud in Canada is expected to increase as more people enter the homeownership market. Whether you buy a or resale home, pursuing home title insurance may be in your best interest, depending on the circumstances of your purchase. You may also be required by your lender to buy the insurance. Discuss it with your lawyer and lender, and reap the benefits of being an informed consumer.
Identity Theft Insurance
As of 2007, First Canadian Title, Canada’s leading provider of title insurance, offers identity theft insurance to its title insurance policyholders. Identity theft is a growing problem in Canada. Someone who has obtained your personal information without your knowledge or consent can commit crimes, rent apartments, apply for loans and any number of other activities using your name.
For a one-time fee, First Canadian Title’s identity theft covers up to $30,000 for expenses involved in credit rating recovery and associated costs, plus up to $10,000 for legal fees resulting from the loss, theft or forgery of a credit card, debit card or forged cheques, and the recovery of lost wages for up to $500 a week, for a total of four weeks, as a result of time taken off to deal with the fraud.
Sometimes, being careful isn’t enough. Identity theft can happen to anyone, anytime. The minimal one-time fee for First Canadian Title policyholders can buy a lot of peace of mind.
What is Mortgage Loan Insurance?
Start building equity faster by buying earlier
Canadian home buyers are among the most fortunate in the world. Across the country, purchasers have access to world-class quality homes by Canadian builders, plus buyers have a financial infrastructure in place that is the envy of other countries. Canada’s national housing agency, Canada Mortgage and Housing Corporation (CMHC), makes it possible for you to purchase a home with little or no down payment, so you can take advantage of lower mortgage rates and begin building equity sooner, rather than having to wait until you have saved 25% for a down payment.
How? Through Mortgage Loan Insurance. In essence, CMHC offers insurance that covers lenders’ risks associated with the financial loss that can occur when a borrower defaults on the mortgage loan. Because this insurance exists, lenders are more willing to provide mortgage financing at competitive interest rates, even to those who do not have a 25% down payment.
As this is a type of insurance, premiums have to be paid – usually between 0.65% and 2.75%, depending on how much of the purchase price or home value is financed through a mortgage loan. In most cases, it also means that the insurance premium costs are passed along to the purchaser by your lender – either as an upfront lump sum, or added onto your regular mortgage payments. Usually, lenders require Mortgage Loan Insurance for loans made to anyone buying a home with less than 25% of the purchase price to put down. In fact, because this form of CMHC insurance exists, you may qualify to finance up to 100% of the purchase price of your home through your lender.
Mandatory mortgage loan insurance has had a positive effect on Canada’s housing finance system over the years, helping to create a stable environment. This insurance is like a safety net for lenders, even during recessions and other slow economic times.
How does it work?
CMHC’s Mortgage Loan Insurance is available for everything from condominium suites to townhomes, semi-detached homes and fully detached homes. There is no upper limit on the purchase price of a home that can qualify for purchase with a small down payment.
The home you are purchasing must be located in Canada.
Usually, the purchaser will have at least 5% (single-family and two-unit dwellings) or 10% (three- or four-unit dwellings) of the purchase price available for a down payment. The CMHC Mortgage Loan Insurance premium is a percentage of the loan and is based on the amount of your down payment. The higher the percentage you borrow, the higher the percentage you will pay in premiums. This cost is typically offset by the fact that without Mortgage Loan Insurance, you would pay higher interest rates and additional administrative fees.
Check with your lender to work out the size of the mortgage loan you can afford. There are mortgage calculators available online, but it is best to have the figure calculated by your lender according to your unique situation. Ask about being pre-approved for a CMHC-insured mortgage. Your lender will arrange for your CMHC Mortgage Loan Insurance.
Check with your lender for the criteria for the types of funds that can make up your down payment.
Check with CMHC for other programs such as Flex 100, designed to help home mortgage borrowers who have not saved a down payment at all, but who have managed their debt reliably and have the financial means to repay a mortgage.
Depending on your circumstances, there may be other requirements that apply. Ask your lender or mortgage broker to explain everything to you in detail.
Remember – Mortgage Loan Insurance is not mortgage life insurance, which ensures that your remaining mortgage is paid off at the time of your death.
Is your home energy efficient?
CMHC feels strongly about helping the environment, and offers the opportunity to home buyers to “Help the Planet, Help Your Wallet.” If you use CMHC-insured financing to buy a home that is energy efficient, you can save 10% on your Mortgage Loan Insurance premium – and you may have the option of extending your amortization period from 25 to a maximum of 40 years. Of course, this would significantly reduce your regular mortgage payments.
Find out how energy efficient the home is that you are thinking of buying. You can do this by acquiring documentation from your builder, or by hiring a qualified energy advisor to evaluate the home’s efficiency rating. Then check with CMHC or your lender to determine whether this rating qualifies you for the 10% premium reduction and/or a lengthened amortization.
Thank you, CMHC!
For most Canadians, the biggest challenge in buying a home is saving the down payment. CMHC’s Mortgage Loan Insurance is a streamlined solution that has made it possible for millions of Canadians to realize the dream of homeownership.
To obtain a list of approved lenders and for more detailed information on CMHC’s Mortgage Loan Insurance, visit www.cmhc-schl.gc.ca/en/co/moloin/.
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