Most people in the real estate business agree that it will take approximately two years before the real estate market in the GTA and thus Mississauga will start to correct itself so we see positive gains again.  As I mentioned before, if your mortgage is low compared to the value of your home you should not have a problem getting a mortgage (assuming your credit worthiness is reasonable).

However, what if you bought a home in 2007 with a down payment of less than 20%?  This would mean that you have an insured mortgage which your mortgage lender insured with one of Canada’s major mortgage insurers, CMHC, Genworth Financial or AIG.  Most people in Canada don’t understand the relationship that lenders have with the mortgage insurers, so maybe we will discuss this topic a little later. Suffice to say that if you have a down payment less than 20% you will have to qualify for both the lender’s and mortgage insurer’s requirements. This is because no mortgage lender will give you an insured mortgage loan without approval from the mortgage insurer. In a normal, improving housing market, the average borrower only insures his/her mortgage once. Why? The combination of the increased property value and their decreased mortgage balance over the mortgage term will cause them to have more than 20% equity in their home at the time of their mortgage renewal, thus no mortgage insurance is required. If a mortgage is not insured a mortgage lender can issue a mortgage approval solely on its own lending guidelines.

FYI: Equity = Property Value – Mortgage Balance

Let’s use an example of a home in a decreasing property value market, analyze the details and compile a checklist of what borrowers have to do to protect themselves from potentially losing their homes when it comes to mortgage renewal time. We will do this in the next blog.