While the re-emergence of certain private mortgage default insurers might not make it onto the radar of most homeowners, the increased competition could pose to change the types of mortgage products available to them.

Mortgage default insurance – provided, currently, by Canada Mortgage and Housing Corporation, Genworth Financial Canada and Canada Guaranty – is the insurance you are legally required to purchase if you put down less than 20% when purchasing a home. This insurance protects the bank or lender in case you default against your loan – even though the buyer is required to pay the premium.

While this type of insurance has more to do with the lender than the homebuyer, it did affect the types of mortgage products – and the number of approvals – that took place in Canada before the recession hit. For years, Genworth and CMHC were the only two players in the market. When AIG United Guaranty came along (now Canada Guaranty), we saw premiums drop, 40-year mortgages enter the marketplace and the introduction of zero-down loans.

Other U.S.-based mortgage default insurers were waiting in the wings – poised to enter the Canadian market – until the recession hit, and they all fled. AIG suffered its share of troubles too – and it had to deal with the negative connotation associated with its U.S. arm that developed during the banking crisis.

Six months ago, the Ontario Teacher’s Pension Plan announced that it would be partnering up with AIG United Guaranty, which promptly changed its name to Canada Guaranty. Since then, the company has been building up strength to become a contender in the tight mortgage default insurance market.

While tightened government restrictions won’t allow a 40-year amortization back into the market anytime soon, you have to assume Canada Guaranty has some tricks up its sleeve if it wants to play with the big dogs. In most cases, lenders choose which default insurer they go with and 75% of the time, they opt for CMHC because its insurance is completely backed by the government. The private insurers still have a government guarantee, but it’s only 90% of their portfolio.

At the very least, we may see some decreased premiums, which is never a bad thing!