Lowering your mortgage payment by eliminating PMI (Private Mortgage Insurance)
Mortgage Default Insurance: This insurance protects the lender in case the borrower defaults on the loan. If your down payment is less than 20%, you'll be required to purchase mortgage default insurance, and the cost of this insurance is usually added to your mortgage amount, increasing your monthly payment.
How to Avoid Mortgage Default Insurance:
20% Down Payment: If you can put down at least 20%, you will avoid paying for mortgage default insurance altogether. This is similar to the U.S. where PMI can be avoided with a 20% down payment.
Eliminating Mortgage Default Insurance: Unlike PMI, which can be canceled once you have 20% equity, mortgage default insurance in Canada is not something that can be removed once it's in place. It's a one-time premium (usually added to your mortgage) that is paid upfront or over time. So, you can’t remove it once it’s been added.
If you initially had less than 20% down and paid for mortgage default insurance, the best way to avoid it in the future is to save up for a 20% down payment on your next home purchase.
Refinancing: If you’ve built up enough equity in your home, you might consider refinancing your mortgage, but mortgage default insurance is generally required when you have less than a 20% equity stake, similar to the initial mortgage process.
So, while you can't "get rid" of mortgage default insurance once it’s in place, making a larger down payment or refinancing with 20% equity is the most effective way to avoid it in the future.
