First Time Home Buyer / Insurance / Lenders / Refinance

Mortgage Insurance Types

Check out our YouTube Video – “Difference between Insurances a Mortgage Broker and an Insurance Advisor Offer”

Mortgage Insurance Types

When applying for mortgage financing of any sort you will be offered mortgage insurance. What kind of insurance you ask? Let’s review the different types of mortgage insurance you may encounter when you are financing a new home purchase or refinancing your already existing mortgage. Keep in mind I am commenting on these different insurance types from the perspective of a mortgage professional only. As always, I strongly recommend you seek the advice of an experienced professional in their field and in this case it is an insurance advisor that will be able to discuss the ins and outs of the second and third types of mortgage insurance mentioned in this article.

High-Ratio Mortgage Insurance

This type of mortgage insurance is mandatory when you are purchasing a home with less than 20% downpayment*. It essentially protects the mortgage lender in the event a borrower defaults on their mortgage. There are presently 3 mortgage insurance companies operating in Canada who all offer the same service, and costs are the same with all three. They will approve your mortgage once the lender has made the recommendation to them and charge a one-time fee which can be added to your mortgage principal and basically included in your regular mortgage payments. The amount of the premiums are predetermined on the downpayment amount, with the costs decreasing as your downpayment amount increases. This type of insurance is most often only required when you are purchasing a home and financing more than 80% of the home value although there may be some exceptions to this rule if you are purchasing or refinancing a property that has some “unique” features or is in a remote location.  That being said, you should talk to your trusted mortgage professional if you have any questions or concerns about the property as these charges do factor into any mortgage approval requirements.

Mortgage Life Insurance

This is also known as “Creditor Insurance” as your mortgage lender is the only one who will be paid out in the event of a claim.  Your lender and/or the mortgage professional will offer you this type of insurance when you are signing your final mortgage approval documents. A notable feature of this type of insurance is your coverage declines with your mortgage balance even though your monthly premium amount stays the same. There are a couple of different types of coverage you can apply for which may include critical illness, disability, and life insurance, however, the payout amount will differ based on your claim type and each insurance company. The nice thing about this insurance is it is convenient to apply for as you do not have to make time for a separate appointment with a life insurance specialist, although it is a double–edged sword due to it not being fully underwritten until time of claim which “may” result in your coverage being denied when you apply for a payout.

Life Insurance

I use the phrase “Life Insurance” lightly as it encompasses all types of coverage a fully licensed insurance advisor would discuss with you, and there are a lot! So, talk to a professional in that industry about all the creative coverage strategies that can protects what’s important to you. This meeting with your insurance advisor can be arranged during the home buying process or at any other time in your life.

Having said all of this, I strongly believe insurance coverage is a discussion you should have when taking on a large debt such as a mortgage just in case something does happen during the life of the mortgage to any of the parties responsible for making the payments. I know its cliché, but I always say “better safe than sorry”.

As you can see, I am obviously a big fan of consulting an expert in their field about your options as they have the knowledge and experience to translate the fine print so it’s easy to understand and apply. There are so many insurance offerings out there with varying coverage; it’s hard to discern which is right for your needs and budget and when it comes to a home purchase, not having adequate insurance could cost you thousands and that’s the last thing you need at that time. Ensure your assets are covered and protect yourself now.

*Some exceptions may apply if you are seeking alternate financing sources.

If you have any mortgage insurance related questions, are looking for a trusted insurance advisor, or just want to chat about your mortgage options, contact the MortgageGirls at 780.433.8412 or info@mortgagegirl.ca. Stay in the loop by following us on Twitter @mortgagegirlca.

Check out our YouTube Video – “Difference between Insurances a Mortgage Broker and an Insurance Advisor Offer”

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