What is Mortgage Insurance and why do I need it?
A home is an important source of equity. While protecting the physical structure is important, it is also vital to protect your mortgage in the event something were to happen. According to the Financial Services Commission of Ontario, “getting a mortgage is often the largest financial commitment you will make”. It requires you to plan ahead for unpredictable circumstances that could impact your financial situation and jeopardize your wellbeing.
The increase in the size of your family, a change in marital status or career, job loss, debt acquisition and developing an illness or becoming disabled or injured, could all pose economic challenges and impact your monthly contributions. Not being punctual with your mortgage payments or being able to pay them in full, can lead to a poor credit rating, the application of late charges and your home going into foreclosure. Mortgage Insurance pays the balance on your mortgage to the mortgage lender (typically the bank) in the event that the person listed on the mortgage passes.
It primarily protects the mortgage lender and allows them to recover any outstanding payments, as well as ensures that the person who inherits your home does not acquire your debt. Premiums can be paid up front or added to your mortgage payments.
Mortgage Insurance is not to be confused with Mortgage Loan Insurance which is offered by the Canadian Mortgage Housing Corporation and private organizations such as Genworth Financial Mortgage Insurance Company and Canada Guarantee. Mortgage Loan Insurance (also termed Mortgage Default Insurance) is usually required, if you make a down payment of less than 20% of the value of the property. It protects the lender if they are no longer able to meet the mortgage payments and their home goes into foreclosure. Consumers are also able to purchase homes with a minimum down payment of 5%, and insurance premiums are calculated based on the value of the home. Premiums can be paid up front or added to your monthly payments.
What other types of insurance are available to protect me if I default on my mortgage payments?
Mortgage Insurance vs Mortgage Protection through a Life Insurance Policy
Mortgage Protection through a Life Insurance policy protects both you and your estate if you are unable to meet your monthly payments due to critical illness, disability or premature death. In contrast to Mortgage Insurance that offers principal protection to the bank, Life Insurance offers a range of products to protect both you and your household from undue hardship, in the event that adversity strikes. Mortgage protection is offered through Term Life, Critical Illness and Disability Insurance.
Term Life Insurance is usually for a specified period of time and the amount of premium remains the same for the duration of the policy. In addition to covering outstanding mortgage payments if you die prematurely, Term Life Insurance can also be used to cover any outstanding debts such as credit cards and a line of credit. In contrast, Mortgage Insurance from the lender only covers the outstanding balance on your mortgage if you pass and renews each time your mortgage renews, thereby increasing your premium.
Term Life Insurance provides coverage for both you and your household, and a death benefit to the named beneficiary if the insured passes, while the policy is still in effect. Mortgage Insurance on the other hand primarily protects the lender. Bear in mind also, that if you switch lenders, you will need to apply for a new mortgage insurance policy, as the insurance is tied to your debt. In contrast, mortgage protection from Life Insurance is tied to you and has your best interests at heart.
Critical Illness and Disability Insurance
If you develop a critical illness such as cancer (certain types), or have a heart attack or stroke, the recovery process may be very costly and may not be adequately covered by your Health Insurance. Critical Illness Insurance will provide you with a lump-sum payment if you fall seriously ill, to cover your medical expenses and mortgage payments while you recover.
Disability Insurance offers coverage in the event that you have been disabled and are not able to work. It will provide a certain amount of insurance for you for a duration, until you are able to go back to work. This amount can also be used towards your monthly expenses.
While you may not be able to predict how your financial situation may change, insurance can give you the peace of mind of minimizing your financial risks, in the event that something unfortunate were to happen. Term Life, Disability or Critical illness Insurance can help you to cover your mortgage payments in the event that you are no longer able to, due to unexpected occurrences.
Mortgage Protection Insurance from My Insurance Broker
My Insurance Broker offers an array of life insurance products to help protect homeowners and their mortgage. In the event that adversity strikes and you are no longer able to meet your monthly payments, you can have the peace of mind that your insurance policy will keep you going. We not only protect your home and its contents but we also protect your investments. Contact a My Insurance Broker Adviser today! Reach us at 1 (855) 482 - 5001.