With housing prices as high as they are, most consumers wouldn’t be able to afford a home purchase without the help of a mortgage. However, the lenders who provide mortgages place themselves at great risk because borrowers may be unable to continue making their mortgage payments at some point throughout the life of the loan.
That’s why mortgage default insurance exists. This type of insurance policy is designed to help protect mortgage lenders if a borrower no longer makes their payments. And even though the lender is protected by such a policy, it’s the borrower who pays the premiums.
In Canada, there are three mortgage default insurance providers, including Sagen MI Canada.
So, what exactly does Sagen do?
Key Points
- Sagen is Canada’s largest private mortgage default insurance provider.
- Sagen was previously known as Genworth, which officially changed its name in early 2021.
- Mortgage default insurance is required if your down payment on a home purchase is less than 20%.
- Your insurance premiums can be paid in one lump sum upfront or rolled into your mortgage payments.
Who Is Sagen MI Canada?
Sagen MI Canada (formerly known as Genworth) is the country’s largest private residence mortgage default insurance provider and plays a key role in helping buyers become homeowners. The other private mortgage insurance company in the country is Canada Guaranty. The Canadian Mortgage and Housing Corporation (CMHC) is the third insurer and is a crown corporation backed by the Canadian government.
When Did Sagen’s Name Change?
As briefly mentioned, Sagen was previously named Genworth Canada. In February 2021, Genworth MI Canada Inc. changed its name to Sagen MI Canada Inc. following an amendment of the company’s articles under the Canada Business Corporations Act. Shortly before the legal name change, the name “Sagen” was used as the business name of Genworth Financial Mortgage Insurance Company Canada for branding and marketing purposes. But by early 2021, the company’s name officially changed to Sagen MI Canada Inc.
What Does Sagen Do?
Sagen offers insurance to help protect lenders when offering mortgages to borrowers. In turn, this helps make mortgages more readily available to homebuyers. Without this type of insurance policy, lenders would be less likely to approve home loans, which would drastically limit the number of homeowners in the market.
With an insurance policy in place, lenders feel secure to loan larger sums of money to borrowers to help them make their dreams of homeownership a reality.
Are Sagen And The CMHC The Same?
While both Sagen and CMHC (Canadian Mortgage and Housing Corporation) provide mortgage default insurance, they differ in that CMHC is a federal corporation, while Sagen is a private insurer.
Their premiums are nearly identical, so using one over the other doesn’t make much of a difference to the homeowner. And since it’s the lender who is being covered, it doesn’t matter a great deal to the homeowner which insurance provider is providing coverage.
What Is Mortgage Default Insurance? Is It A Requirement?
Not all borrowers who take out a mortgage will have to pay into mortgage default insurance. It will all depend on the down payment amount being put forth after the real estate deal goes through.
To avoid paying mortgage default insurance, borrowers must put a down payment of at least 20% of the home’s purchase price. Any less than this will require borrowers to pay this additional insurance premium. Mortgage default insurance is a requirement for down payments between 5% and 19.99%.
With at least a 20% down payment, the loan amount required will be smaller. That means the borrower will have more equity in the home at the onset of the mortgage. The higher the down payment, the lower the risk for the lender in terms of the chances that the borrower will default on the mortgage.
While the need to pay more into a mortgage may seem like a nuisance, this type of policy makes it possible for more consumers to become homeowners. Without it, fewer people would able to afford a home purchase and acquire a mortgage.
The premium can either be paid in one lump sum at closing or can be rolled into the mortgage payments and paid little by little throughout the mortgage.
How Much Does Sagen Mortgage Insurance Cost?
Depending on your loan-to-value (LTV) ratio you can expect to pay anywhere between 0.60% to 4.0% in premium rates. The following chart breaks down the premium rates for various down payment amounts:
| Loan-To-Value (LTV) Ratio | Sagen Premium Rate |
| 90.01% – 95% | 4.00% |
| 85.01% – 90% | 3.10% |
| 80.01% – 85% | 2.80% |
Source: Sagen.ca
How To Calculate Your Sagen Mortgage Default Insurance Cost
If you’re making a 10% down payment on a $650,000 home, you’ll have a mortgage of $585,000 ($650,000 – $65,000 down payment). This would put you in the 3.10% premium rate category, given that your LTV ratio is 90% ($585,000 ÷ $650,000).
As such, the cost of your insurance premium would be $18,135 ($585,000 x 3.10%).
Your lender would add this amount to your mortgage loan, which would leave you with a total mortgage amount of $603,135.
| What Is An LTV Ratio? Your LTV is ratio is your loan amount divided by the value of the home. For example, if the value of your home is $650,000 and you apply for a $400,000 mortgage, your LTV would be 61.5% ($400,000 ÷ $650,000). |
How Can I Avoid Paying Sagen Mortgage Default Insurance?
The most obvious way to avoid paying Sagen mortgage default insurance is to make a down payment that’s at least 20% of the purchase price.
If you can’t entirely avoid paying mortgage default insurance, you may still be able to reduce these costs by doing one of the following:
Make A Bigger Down Payment
Perhaps making a 20% down payment is a bit too much for your finances to handle. But you can keep costs low by making a down payment that’s less than 20% but more than the minimum 5%.
For example, a 5% down payment would mean you’d have to pay 4.0% on your loan amount. But a 10% down payment will lower your rate to 3.10%, which saves you quite a bit of money.
Take Advantage Of Sagen’s Portability Feature
You can save on the costs of a new mortgage by porting your mortgage default insurance to a new home when you sell your existing home. Insurance can be ported to a new home for up to 6 months after the closing date of your currently insured mortgage property. Just make sure your lender uses the same mortgage default insurance provider.
Shorten Your Amortization Period
You can cut costs on mortgage default insurance premiums by choosing a shorter amortization period when you take out a mortgage. Shorter amortization periods are generally considered lower risk than longer ones, so your premiums could be lower.
Final Thoughts
While mortgage default insurance protects the lender, you pay the premiums if you don’t make at least a 20% down payment. Be sure to budget accordingly when you apply for a mortgage and start the search for a new home to buy.
