What Does TD Mortgage Insurance Cover?

Purchasing a home is likely one of the largest financial decisions you’ll make in your life. And when mortgage rates are low, it can be tempting to want to buy more houses than you can reasonably afford. This is where mortgage insurance comes in.

Mortgage insurance is an insurance policy that protects the lender (in this case, TD Canada Trust) in case you default on your mortgage payments. It allows buyers who have less than a 20% down payment to qualify for a mortgage since the insurance makes up for the extra risk.

TD offers mortgage insurance on high-ratio mortgages through Canada Mortgage Housing Corporation (CMHC) and Genworth Financial. Let’s take a closer look at how TD mortgage insurance works and what exactly it covers.

When Is Mortgage Insurance Required from TD?

With a TD mortgage, you typically need to have mortgage insurance if your down payment is less than 20% of the purchase price. For example:

• If you buy a $500,000 home with a 5% down payment of $25,000, you’ll need to get mortgage insurance since $25,000 is less than 20% of $500,000.
• If you buy a $300,000 condo with a 15% down payment of $45,000, you won’t need mortgage insurance because your down payment exceeds 20%.

TD offers two options for mortgage insurance:

• CMHC: This is government-backed insurance provided by the Canada Mortgage Housing Corporation. It’s required for high-ratio mortgages with less than 20% down.
• Genworth: This is a private mortgage insurance company used by TD. You can choose Genworth instead of CMHC if you prefer.

In most cases, CMHC is the better option since it provides more coverage and flexibility. But check with TD to see if Genworth could be a better fit for your specific situation.

What Does TD Mortgage Insurance Protect Against?

There are two key things TD mortgage insurance protects the lender against:

• Default on your mortgage payments – If you run into financial hardship and can no longer make your mortgage payments, the insurance would cover TD’s losses related to the default. This ensures TD can recover its investment even if you go into foreclosure.
• Mortgage balance exceeding the home’s value – If housing prices drop and your mortgage balance ends up higher than the actual market value of your home, the insurance protects against this loss as well.

Essentially, the insurance shifts the risk from the lender to the insurer. This allows TD to lend to buyers who don’t have the traditional 20% down payment saved up.

How Much Does TD Mortgage Insurance Cost?

TD mortgage insurance costs vary based on the size of your down payment and loan amount. The CMHC insurance premiums are:

• 5% down: 3.6% of the loan amount
• 10% down: 3.1% of the loan amount
• 15% down: 2.8% of the loan amount

For a $300,000 mortgage with 10% down, the CMHC premium would be around $9,300 ($300k x 3.1%). This premium can either be paid upfront or added to your mortgage balance (where it will accrue interest).

Genworth mortgage insurance rates are fairly similar to CMHC. Get a quote from TD to find the exact premium costs.

How Long Do You Have to Pay Mortgage Insurance?

TD mortgage insurance is not a lifelong commitment. The policy ends when you reach 20% equity in your home.

For example, let’s say you purchased a $400,000 home with a 10% down payment of $40,000. Your original mortgage was $360,000.

As you pay down your mortgage and your home value increases over time, your equity will eventually exceed 20% of the purchase price. At that point, you can terminate the mortgage insurance.

CMHC estimates most homeowners can cancel mortgage insurance within 5-8 years of purchasing their home. But it depends on factors like your down payment amount, mortgage payments, and appreciation of your home’s value.

Alternatives to TD Mortgage Insurance

While mortgage insurance provides protection for the lender, there are a couple of alternatives to consider if you want to avoid this additional cost:

• Put 20% down: The obvious way to avoid mortgage insurance is to put down at least 20% when purchasing your home. This shows the lender you have enough equity in the home.
• Take a blended mortgage: You may qualify for a combination of a secured first mortgage from TD (like 80% of the purchase price) plus a second unsecured mortgage loan for the remaining amount. This avoids CMHC insurance by keeping the main mortgage under 80%.
• Buy mortgage insurance yourself: Instead of having TD obtain mortgage insurance, you could potentially buy your own policy directly from an insurer like Genworth. This gives you more control.

Think about your specific situation to decide if alternatives like these make sense or if standard TD mortgage insurance is the better fit.

The Bottom Line

Mortgage insurance enables you to buy a home with less than 20% down by protecting the lender against default or foreclosure. TD offers both CMHC and Genworth mortgage insurance options to cover high-ratio mortgages.

While mortgage insurance costs extra, it’s usually only required for the first 5-8 years until you build 20% home equity. And it provides invaluable protection that allows you to achieve your dream of homeownership even if you lack a large down payment.

Experience the ease of using our latest TD Mortgage Calculator to Calculate Monthly Payments for Your Ideal Home

William Lyon