|Canada Mortgage and Housing Corporation (CMHC)|
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Definition of Canada Mortgage and Housing Corporation (CMHC)
Canada Mortgage and Housing Corporation (CMHC)
The National housing Act (NHA) authorized canada mortgage and housing corporation (cmhc) to operate a mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.
Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.
An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by cmhc [canada mortgage and housing corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]
Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible. The new rules which apply to RRSP's are that the holder of such a plan must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in an pay full tax in the year of receipt, convert it to a RRIF and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years, again paying tax each year on moneys received.
Commonly referred to as a RRIF, this is one of the options available to RRSP holders to convert their tax sheltered savings into taxable income.
A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).
Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for purposes of purchasing a loan secured by a home.
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.
mortgage insurance insures the lender against loss in case of default by the borrower. mortgage insurance is provided to the lender by cmhc or GEMICO and the premium is paid by the borrower.
A mortgage that does not exceed 80% of the purchase price of the home. mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages (see below).
A mortgage for which the rate of interest is fixed for a specific period of time (the term).
If you don't have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a mortgage Insurer, such as cmhc.
mortgage Critical Illness Insurance is available as an enhancement to mortgage Life Insurance. It is usually underwritten by the Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your mortgage -- up predefined limit -- if you are diagnosed with life-threatening cancer, heart attack or stroke.
The lender is the mortgagee and the borrower is the mortgagor.
Mortgage Life Insurance
A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.
The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.
A mortgage which can be prepaid at any time, without penalty.
Variable Rate Mortgage
A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.
An independent individual (or company) who brings together borrowers and lenders together. Unlike a mortgage banker, a mortgage broker does not fund the loan. Instead, the broker originates and processes the loan, and places it with a funding source, such as a bank or thrift. Brokers typically require a fee or a commission for their services.
Private Mortgage Insurance (PMI)
Insurance that protects mortgage lenders against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20 percent of the sale price. Home buyers pay for the coverage in monthly installments. PMI should be terminated when the home buyer has built up 20 percent equity in the property.
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