If no one lets you know, the first step in buying a home is getting the correct insurance for your property. Mortgage Insurance Policies are available in Canada to help homeowners protect their mortgage payments in case of the unexpected, such as illness, job loss, or death. How do you purchase mortgage insurance, though? What options are available? But how can you be sure you're getting the best coverage for your needs?
In this post, we will take you through the process of purchasing Mortgage Insurance in Canada, including covering the different types of coverage, what factors you should consider, and how to compare Mortgage Insurance Quotes Online to ensure you make an informed choice.
What is Mortgage Insurance?
Mortgage Insurance is coverage that protects the homeowner and the lender in case the homeowner cannot make mortgage payments due to unforeseen events. For example, if you cannot work because of illness or injury, Mortgage Insurance may pay your mortgage payments until you return to work. This policy can clear the remaining balance of the mortgage, should something happen with the homeowner, so the family does not have to worry about the debt.
Most people know home insurance, which covers the physical property itself, but Mortgage Insurance Policies protect the actual mortgage loan.
There are two primary types of Mortgage Insurance available in Canada:
Mortgage Default Insurance
Mortgage Life Insurance
Each type serves a different purpose, and understanding the distinction is key to buying the right coverage.
1. Mortgage Default Insurance
Needed for High-Ratio Mortgages: This insurance is a must if your down payment is less than 20% of the home's purchase price. Therefore, it gives lenders a sense of security and protection if the borrower fails to keep up with their mortgage payments.
Benefits the Lender, Not the Borrower: Unlike some Mortgage Insurance that protects the borrower, mortgage default insurance mainly safeguards the lender's interests. But it's the borrower who pays it.
Insured By Government: Three primary insurers offer mortgage default insurance in Canada: Canada Mortgage and Housing Corporation (CMHC), Genworth Canada, and Canada Guaranty. These companies are government-backed. Thus, reliable coverage is guaranteed.
Mortgage default insurance premiums are generally added to monthly mortgage payments, although they can also be paid in a single lump sum upfront. The cost of the premium varies according to the size of the mortgage as well as the amount of the down payment — it can be between 0.6% and 4.0% of the mortgage amount.
2. Mortgage Life Insurance
Mortgage life insurance is a standalone product — a policy created to help pay off the balance of your mortgage if you die. This insurance pays off your remaining mortgage balances at the time of your death. Mortgage protection insurance will keep your loved ones from taking on your mortgage debt if something were to happen to you.
Key Features of Mortgage Life Insurance:
Pay-off Borrow: This type of coverage is included to reduce the remaining balance for the death of the policyholder. This is especially important for homeowners who have dependents or those who want to ensure their families can keep the home.
Declining Coverage: Mortgage life insurance frequently also has coverage that declines over time, as does the mortgage balance. The only reason for that is that the insurance value is tied to the mortgage amount.
Option to Insure: Mortgage life insurance is not mandatory like mortgage default insurance is for high-ratio mortgages. It is typically purchased directly from a lender or through an independent insurance broker.
Mortgage life insurance is generally sold through your bank or financial institution, but you should always compare Mortgage Insurance Quotes Online to find the best plan for you at the lowest price.
How to Buy Mortgage Insurance in Canada
Now that you understand the types of Mortgage Insurance available in Canada, let's walk through the steps to purchase the right policy for your needs.
Step 1: Assess Your Needs
You should consider your personal situation before purchasing Mortgage Insurance. Consider the following things:
Amount of Your Mortgage: The larger the mortgage, the more you may need to protect. Typically, a larger mortgage will need more insurance coverage.
Up-Front Payment: When your down payment is less than 20% , you are required to purchase default Mortgage Insurance. However, you may not have to pay for this insurance if you have a larger down payment — and you can still reap the rewards of mortgage life insurance.
Dependents: Own dependents or a spouse who would require financial assistance upon your death? Mortgage life insurance can provide peace of mind, knowing your family can stay in the home if something happens to you.
Health and lifestyle: If you have health issues or engage in dangerous hobbies, think about purchasing extra coverage or considering policies with more expansive coverage.
Step 2: Choose the Right Type of Insurance
Different types of mortgage insurance and which is right for you. If you buy with less than 20% down, you need mortgage default insurance (except in Alberta, Quebec, and Manitoba, where different rules apply). Mortgage life insurance is helpful if you want to protect your family if you pass away.
You can obtain mortgage life insurance directly from your lender or through an independent insurance provider. This is only an average, and many must take out group mortgage life insurance from lenders , and you will have to accept conditions for such insurance more often. However, you need to compare different policies and rates so that you can get the best deal.
Step 3: Shop for Mortgage Insurance Quotes Online
Once you know what type of insurance you need, you'll want to check out the Mortgage Insurance quotes you can get online. [See: How to Make Sense of Mortgage Insurance Cost: Here are some things to consider when comparing quotes:
Premiums: Make sure you know the size of the premiums and how they're structured. Mortgage life insurance premiums are typically based on your age, health, and mortgage size.
Coverage Amounts: The policy should provide enough coverage to match the weight of your mortgage balance, especially when you are taking out a large loan or if you need to provide for a family.
Covered Services: Know the limits of the health insurance plan. Some policies include relevant exclusions or limitations, so read the fine print.
Step 4: Complete the Application Process
Now that you have found the right insurance plan, it is time to complete the application. Depending on the insurer, you may need to fill out a medical questionnaire (especially with mortgage life insurance). (Some insurers also require a medical exam, others don't.)
For mortgage default insurance, the application process is straightforward as it is generally included with your mortgage application. The insurer applies those to your down payment, mortgage size, and your premium.
Step 5: Review Your Policy
Before finalizing your policy, make sure to carefully review the terms. Understand the coverage limits, premiums, exclusions, and any other conditions. It's also a good idea to set a reminder to review your insurance policy annually to ensure it still meets your needs.
Tips for Saving on Mortgage Insurance
While Mortgage Insurance is an unfortunate but necessary part of homeownership for many Canadians, there are a couple of things you can do to save on premiums:
Save More for a Down Payment: If you put down more than the minimum, you won't have to pay for mortgage default insurance.
Shop Around: Never accept the first quote you get. Now, search for deals using the best online insurance quotes; with their compared Mortgage Insurance, you can save some money and avoid unnecessary coverage expenses.
Steer Clear of Mortgage Life Insurance: Rather than purchasing mortgage life insurance through your lender, get term life insurance. Term life insurance is more flexible and cheaper, especially when you're young and healthy.
Conclusion
Mortgage Protection in Canada is an important step in protecting your home and loved ones. Whether you need to get mortgage default insurance or you choose to buy mortgage life insurance for some additional peace of mind, it's best to understand your options so you can pick the right coverage.
Shopping around and leveraging Mortgage Insurance Quotes Online can help you find the coverage you need at a price point that fits your budget. Make sure to periodically audit your policy to ensure it aligns with your reformatting financial portrait.
Mortgage Insurance will shine the light on you so you can be sure that one way or another, your home will be in safe hands. Take some time to know what are the mechanisms to protect your investments.
