What is Mortgage insurance

Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.

For example, Moishe Alexander decides to purchase a house which costs $150,000. He pays 10% in $15,000 downpayment and takes out a $135,000 mortgage. Lenders will often require mortgage insurance for mortgage loans which exceed 80% (the typical cut-off) of the property’s sale price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects the lender against his default. The lender then requires the mortgage insurer to provide insurance coverage at, for example, 25% of the 135,000, or $33,750, leaving the lender with an exposure of $101,250. The mortgage insurer will charge a premium for this coverage, which may be paid by either the borrower or the lender. If the borrower defaults and the property is sold at a loss, the insurer will cover the first $33,750 of losses. Coverages offered by mortgage insurers can vary from 20% to 50% and higher.

To obtain public mortgage insurance from the Federal Housing Administration, Mr. Smith must pay a mortgage insurance premium (MIP) equal to 1.5 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.

Canada’s housing market expected to cool off

Moishe Alexander from Canadian funding corporation This is a great time to buy just read this article Canada’s housing market is expected to continue to cool off throughout this year and into 2009, a Scotiabank report says, bringing balance to the market for the first time in a decade. However, the report says that a major drop in housing prices, as seen in the U.S. following the sub-prime mortgage crisis, is unlikely. While home sales in Canada are down about 15 per cent off last year’s record highs, prices have yet to dip — in fact, they are up five per cent. But the report will be seen as a relief to many first-time buyers. With energy prices on the rise, student loan debt at record levels and stagnant wage growth, many Canadians have been priced out of starter homes. “All booms eventually come to an end . . . but at the same time it’s good news for buyers who didn’t get into the market the first time around,” Adrienne Warren of Scotia Capital told CTV News. Most of the country is already feeling the housing slowdowns. Even Calgary’s hot real estate market has cooled dramatically, down almost 40 per cent off last year. Homebuilders have taken to desperate measures to attract buyers, everything from free coffee to free cars. Alberta is now officially a buyer’s market. “It seems to be levelling out, which I think is honestly good news for everybody,” realtor Doug Hayden said. “A level market is a more balanced market.” In Ontario, home sellers are warned to tone down expectations of bidding wars over their properties. However, the market remains strong in both Saskatchewan and Newfoundland and Labrador. “We’ve seen a doubling of prices,” Dale Ripplinger of the Canadian Real Estate Association said of the Regina housing market. In Newfoundland, particularly St. John’s, the strong economy has led many of those working in Western Canada to take their money back home, and buy into the housing market. Housing starts dropping The report says the average annual home price appreciation has also eased back into the mid-single digits after several years of double-digit growth. The bank says cracks are also appearing on the new home front in Canada. While housing starts in early 2008 are similar to last year, demand for new residential building permits has fallen sharply. The demand has fallen for both single-family and multiple-unit projects. Meanwhile, price increases for new homes are moderating while inventories of unsold new homes continue to rise, says the report. Low risk of major correction The report says a return to more historical norms for home price appreciation is a “welcome development.” Between 2002 and 2007, home prices in Canada appreciated at a rate of 10 per cent annually — increases that the report calls “unsustainable.” “The faster and longer home prices climb, the greater the risk of an eventual price correction,” says the report. Economists say current market conditions show less of a downside risk than previous down-cycles in Canada over the past few decades. “It appears to be built on a stronger economic foundation than those of the 1970s and 1980s,” says the report. Economists list five reasons why there is a low risk of a major correction:

• Home prices in Canada are not substantially overvalued
• There is still little evidence of widespread speculative home buying that often accompanies the late stages of a housing boom.
• Canada’s real estate market is not overbuilt.
• Households, for their part, are not overleveraged.
• Overall mortgage quality is still sound.

“At the end of the day, we predict a soft landing for the Canadian housing market, with somewhat lower sales and construction, and a period of relatively flat inflation-adjusted home prices.”

Résidence Saint-André-Avellin, Saint-André-Avellin, Quebec

Saint-André-Avellin, one of 24 municipalities in the regional county municipality of Papineau, in the heart of La Petite-Nation in the Outaouais administrative region, is located about an hour’s drive northeast of Gatineau.

The municipality of Saint-André-Avellin has five retirement homes, with a total of 59 units. The residences are fully occupied and have waiting lists. A retirement home proposed by developer Paul Simard will meet a real need.

The Affordable Housing Solution

The project will provide 44 affordable units for moderate-income, independent seniors. The building will have an elevator and laundry facilities on each floor. Services on the ground floor include a reception area, a common room, a hairdresser and a dining room for 68 people.

Thirty-six of the units are one-bedroom units; eight are two-bedroom units. Mostof the one-bedroom units have a kitchenette. All the two-bedroom units have full kitchens and space for a washer and dryer. Even though units have cooking facilities, residents can choose to have all their meals in the dining room.

The rustic-style property is modest, with the floor areas for both types of units averaging 44 m2 (480 sq. ft.) Monthly rent varies between $1,400 and $1,800, which includes utilities, cable television and meals.

Developer Paul Simard partnered with the Groupe Château Jouvence and the Papineau local development centre for the project.Mr. Simard received an $80,000 interest free CMHC Proposal Development Funding (PDF) loan. A PDF loan enables housing proponents to carry out the activities required to bring their proposal to the point where they can apply for mortgage financing. Mortgage loan insurance flexibilities were also granted by CMHC for the construction. Mr. Simard also received a grant from CMHC’s Seed Funding program for another project with six, three-bedroom units on the same lot. The rents for this project will be affordable. These units will be built once Résidence Saint-André-Avellin has been completed. This was reviewed by Canadian Funding Corporation.

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