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Can Mortgage Insurance Be Cancelled?

Let’s address the burning question: can mortgage insurance be cancelled in Canada? The answer is yes, but there are certain conditions that need to be met. For conventional mortgages, mortgage insurance can be removed when the borrower reaches 20% equity in the property. The rules and regulations surrounding mortgage insurance cancellation are governed by the Homeowners Protection Act of 1998 (HPA). The HPA applies to conventional mortgages made after July 29, 1999. 

When it comes to homeownership, mortgage insurance plays a significant role in protecting both lenders and borrowers. However, many homeowners are left wondering if mortgage insurance can be cancelled. In this comprehensive guide, we will explore the rules and regulations surrounding mortgage insurance cancellation in Canada. We will delve into the eligibility criteria, different cancellation methods, potential refunds, and what to do if your lender refuses to cancel mortgage insurance. So, let’s dive in and find out if mortgage insurance can indeed be cancelled.

Contents

  1. Can Mortgage Insurance Be Cancelled?
    1. Understanding Mortgage Insurance
    2. Eligibility to Cancel Mortgage Insurance
    3. Different Ways to Cancel Mortgage Insurance
      1. Automatic Cancellation.
      2. Cancellation by Request
      3. When Can Mortgage Insurance Be Removed in Canada?
      4. Mortgage Insurance Refunds
      5. What If Your Lender Refuses to Cancel Mortgage Insurance?
  2. FAQs
    1. Q: Can we cancel mortgage insurance in Canada?
    2. Q: At what point can you get rid of mortgage insurance?
    3. Q: When can I remove   mortgage insurance in Canada?
  3. Conclusion

Understanding Mortgage Insurance

Before we delve into the intricacies of mortgage insurance cancellation, let’s first understand what mortgage insurance is and why it is required. In Canada, mortgage insurance is typically required for homebuyers who have a down payment of less than 20% of the purchase price. This insurance protects the lender in case the borrower defaults on their mortgage payments. It is important to note that mortgage insurance is different from home insurance, which covers damage to the property itself.

Eligibility to Cancel Mortgage Insurance

To be eligible to cancel mortgage insurance, borrowers must meet specific criteria. For conventional loans, there is usually a minimum payment period of 24 months. Even if the requirements are met, borrowers may still be required to pay private mortgage insurance (PMI) for two years. The eligibility criteria for mortgage insurance cancellation include:

  • Having a good payment history with no payments that were 30 days or more past due in the prior 12 months.
  • Being current on the loan.
  • Certifying that any equity in the property is not subject to a subordinate lien.

Different Ways to Cancel Mortgage Insurance

There are three main ways to cancel mortgage insurance: automatic cancellation, cancellation by request, and final termination.

Automatic Cancellation

Automatic cancellation occurs when the principal balance of the mortgage reaches 78% of the original value according to the amortization schedule. The lender must automatically cancel the mortgage insurance on the termination date. It is important to note that the termination date is determined by the amortization schedule and cannot be advanced by making additional payments.

Cancellation by Request

Cancellation by request happens when the principal balance of the mortgage reaches 80% of the original value. The borrower can request cancellation by submitting a written request to their lender. However, many lenders enforce a two-year minimum for mortgage insurance, meaning borrowers may have to pay for mortgage insurance for the first two years of the loan.

When Can Mortgage Insurance Be Removed in Canada?

The process of removing mortgage insurance in Canada depends on various factors, including the type of loan, the amount of equity accumulated in the property, and the lender’s policies. Here are the key points to consider for mortgage insurance removal:

  • For conventional mortgages, mortgage insurance can be removed when the borrower reaches 20% equity in the property. This can be achieved by making principal payments, the property appreciating in value, or a combination of both.
  • For high-ratio mortgages, mortgage insurance is typically required until the borrower reaches a loan-to-value ratio of 80%. This means that the borrower should have at least 20% equity in the property.
  • It’s important to note that mortgage insurance cannot be removed from government-insured mortgages, such as those insured by the Canada Mortgage and Housing Corporation (CMHC), as these loans have different rules and regulations.

Mortgage Insurance Refunds

If you are eligible for mortgage insurance cancellation, you may be entitled to a refund of the premiums you have paid. According to the HPA, lenders must refund unearned mortgage insurance premiums within 45 days after the termination of coverage. The refund must be directly issued to the borrower and cannot be returned to the borrower’s escrow account.

What If Your Lender Refuses to Cancel Mortgage Insurance?

In some cases, borrowers may face challenges when requesting mortgage insurance cancellation from their lenders. If your lender refuses to cancel mortgage insurance, there are steps you can take to address the issue. Under Section 6 of the Real Estate Settlement Procedures Act (RESPA), lenders are required to acknowledge complaints within 20 business days and resolve them within 60 business days. If your lender does not comply with the HPA, you can report the violation to the appropriate federal regulator, such as the Consumer Financial Protection Bureau (CFPB).

FAQs

Q: Can we cancel mortgage insurance in Canada?

Yes, mortgage insurance can be cancelled in Canada under certain conditions. Eligibility criteria include having a good payment history, being current on the loan, and certifying that equity in the property is not subject to a subordinate lien.

Q: At what point can you get rid of mortgage insurance?

Mortgage insurance can be removed when the borrower reaches 20% equity in the property for conventional mortgages. For high-ratio mortgages, mortgage insurance is typically required until the borrower reaches a loan-to-value ratio of 80%.

Q: When can I remove mortgage insurance in Canada?

The process of removing mortgage insurance in Canada depends on various factors, including the type of loan, the amount of equity accumulated in the property, and the lender’s policies. Generally, mortgage insurance can be removed when the borrower reaches 20% equity in the property.

Conclusion

In conclusion, mortgage insurance can be cancelled in Canada under specific circumstances. By meeting the eligibility criteria and following the appropriate procedures, borrowers can remove mortgage insurance and potentially receive a refund of premiums paid. However, it is essential to understand the rules and regulations governing mortgage insurance cancellation and to communicate effectively with your lender to ensure a smooth process. Remember, if you encounter any difficulties or have concerns, you can always seek guidance from the appropriate regulatory bodies. 

Citadel Mortgages is one of the most experienced brokerage firms in Canada. Reach out to one of our representatives to know all about mortgage insurances. 

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