An insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan is known as mortgage insurance. This type of insurance can be private or public depending on the insurer.

Let’s say you decide to purchase a house which costs $175,000. You pay 5% ($8,750 down payment) and take out a $166,250 mortgage. Most lenders will demand mortgage insurance for loans which exceed 80% of the property’s sale price. Due to your limited equity, the lender requires that you purchase mortgage insurance that protects the lender against default. The lender will then require the mortgage insurer to provide insurance coverage at let’s say 30% of the $166,250 or $49,875. The lender will be left with an exposure of $116,375. A premium will be charged for this coverage by the mortgage insurer. This can be paid to the borrower or the lender. Now if the borrower defaults and the property is sold at a loss, the insurer is obliged to cover the first $49,875 of losses.

Basically, mortgage insurance is payable to the lender for securities that in some cases might be required when taking out a mortgage loan. This insurance is used to offset losses in the event where a mortgager is not, under any circumstances, able to repay the loan and the lender is not able to recover its costs after issues like foreclosure and sale of the mortgaged property.

As of June 1st, 2010 a Harmonized Sales Tax (HST) will be in effect in the province of Ontario. Harmonized Sales Tax refers to a combination of the Goods and Services Tax (GST) and the Provincial Sales Tax (PST). This new single tax consists of 5% GST and 8% PST which brings the HST to 13%. You will be affected because you pay PST on your insurance premium. Also, according to the Ontario Real Estate Association, the merging of the two taxes will tack on more than $2, 000 to the cost of a real estate transaction. (New homes under $400, 000 are exempt from the blending of the taxes.) However, the purchase of resale homes will remain exempt from PST but real estate transaction fees (legal fees, home inspection, land transfer tax etc.) will continue to be taxed.

The company we deal with is Kaye Consulting. For further inquiries regarding mortgage insurance contact Sean Kaye at 289-242-6793 or