MORTGAGES: Mortgage insurance is a pillar of Canada's strong housing market

Mortgage insurance -- policies that protect lenders in case of default -- has revolutionized the Canadian housing market, experts say. For a relatively low premium, tacked onto the face value of a loan, buyers can own their home with as little as five per cent cash down payment.

First introduced about 35 years ago by what was then Central Mortgage and Housing Corp., it has meant that as house prices across the country soared, so did the ability of the average working Canadian to buy a home without waiting years to raise a 20 per cent down payment.

"We just would not see the strong housing market -- new and resale alike -- that we have enjoyed for the past decade without mortgage insurance," says Ajay Soni, senior broker with Invis, a national lender, in Vancouver.

"Without it, Canadians would still face either the need for 20 per cent down payments or substantial second mortgages at high interest rates. It has shaved years off the time families must scrape and save for a down payment."

To give an idea of the scope of mortgage insurance, in 2008 alone Canada Mortgage and Housing Corp. insured 400,000 residential loans in Canada, says Mark McInnis, vice-president underwriting, servicing and policy at CMHC.

Mortgage insurance is legally compulsory on any residential mortgage made for more than 80 per cent of the appraised value of a new or resale home by a federally regulated lender such as a bank, says McInnis.

(Source: Vancouver Sun)