The benefits of mortgage insurance

As we all know, buying a home is one of the most important transactions you will ever make. You’ve found your dream home and have bought home insurance to cover your property and legal liability. You think that you’ve got it all covered (pun intended!) and that all you have left to do is pack up your boxes and move in. Not so fast! Have you thought about mortgage protection insurance?

What is mortgage loan insurance?

The term “mortgage insurance” can refer to several different products, including mortgage life insurance and mortgage disability insurance. It covers your family for mortgage payments in the event of your death or inability to work. So if your household suddenly loses its main breadwinner to an illness, injury or death, the family members won’t be caught unprepared or risk losing the roof over their heads.

Is it mandatory in Canada?

No, mortgage insurance is not mandatory in Canada. However, it’s important to note that this product is entirely different from the Canada Mortgage and Housing Corporation (CMHC) insurance, which is designed to protect lenders against default. Also known as mortgage default insurance, it is mandatory for real estate purchased with a down payment of less than 20%.

Insuring your mortgage loan in case of death, disability or critical illness

Have you ever thought about what would happen if you were to pass away suddenly? Would your spouse and/or heirs be able to cover the mortgage payments and other living expenses? Mortgage insurance is a great tool to ensure your family’s financial stability, since it enables you to pay back all or a portion of your financial obligations in the event of death.

You can also enhance your coverage to keep a disability or critical illness from having a major impact on your mortgage payments, finances and lifestyle. This will ensure that your real estate investment is protected against life’s bad surprises so you can focus on the most important thing: getting better.

Should you buy your mortgage protection insurance from an insurance company or from the mortgage lender?

There are two ways to buy mortgage insurance: from the lender when signing your mortgage or from an insurance company (just like ours). What are the differences between the two? Which one represents the best deal for you? Let’s have a closer look at it in five quick points:

1. You are the owner of the contract and you choose your beneficiaries

Since you own the contract, you can decide on a coverage amount that takes into account other financial needs that you have like other debts, the income needed to support your family or money for your children’s higher education.

When you buy mortgage insurance from the mortgage lender, however, the insurance amount is the same as your mortgage balance, and the lender actually is the contract’s owner. In other words, the insurance cost that you’re paying for is also sort of protecting them.

2. You get to choose your beneficiaries

Buying your mortgage loan insurance from an insurance company also gives you the (precious) freedom to decide who will receive the insurance money if you were to pass away. If you had decided on a coverage amount greater than your mortgage balance, they will also have the latitude to decide what to do and prioritize what to pay off with the exceeding money.

You might not be aware of this, but when you purchase mortgage protection insurance through the mortgage lender, they are automatically the beneficiary. This means that they actually get the coverage amount in the event of your death

3. Your coverage and premium are flexible and can be adapted to your needs

When you buy mortgage insurance from an insurance company, you can choose between two types of coverage amounts:

• The first is uniform and remains the same for the entire coverage term. In this case, your premium is also fixed and guaranteed until the renewal, conversion or expiration of your coverage
• The second is decreasing (to 50% of the initial coverage amount). Decreasing coverage is a good option to cover your mortgage, because it reflects the decrease in your mortgage balance over time. This is a more affordable way to cover your mortgage loan in the event of your death

With a financial institution, you have no choice in the matter: the amount of your mortgage loan coverage decreases simultaneously with your mortgage balance, while you keep paying the same premium amount for the duration of the contract.

4. No more shopping around and comparing

By buying your mortgage insurance from an insurance company, you won’t have to shop around for mortgage insurance for the duration of the insurance term.

Conversely, if you buy your mortgage protection insurance from a financial institution and then decide to change lenders, you’ll have to renegotiate a mortgage insurance. Why?

Because the previous insurance contract was owned by the former lender and becomes void once you switch. You also need to take into consideration that the insurance cost is likely to go up, as you will now be older and the risk for the insurer will be greater.

5. You can convert your mortgage loan insurance

If your life circumstances were to change and you feel the need to do it, an insurance company will allow you to convert your mortgage insurance to permanent life insurance throughout the term of your loan. You won’t have to provide any proof of insurability for this change, and you can maintain your initial coverage amount. Plus, your policy will remain in force until your death.

So, you read through the article and now feel like it would be a great idea to get mortgage insurance in addition to your home insurance so to get full home owner protection?

You can use our mortgage insurance calculator to see how affordable it can be. You can also find an advisor to get some more information or get a quote started!