When signing your mortgage approval documents you notice some sections but ignore others. While mortgage default insurance is a term that is hard to ignore, because it is mentioned right below your loan amount. However, mortgage life insurance is a section that is mentioned on the additional pages, that most borrowers ignore to read. When considering life insurance, the bank mortgage insurance and term life insurance are slightly different. Both offer life insurance, but benefit the insurer differently.
What is Mortgage Default Insurance? If, the applicant wants to put down less than 20% down payment. A mortgage premium is added to the loan amount. If, the applicant can only make a down payment of 5%, 10% or 15%, the application is sent to Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada for approval. The reason, why the mortgage premium is added, is to secure the lender if you cannot make your payments.
- Put down a smaller deposit
- Get a mortgage loan with 95% of the purchase price
- Buy your dream home faster
- Total cost of your loan will be lower
- Slightly higher interest rates
- Higher monthly payments
- borrowers more, loan amount increases
- Minimum down payment depends on your purchase price
The question if you should consider getting mortgage default insurance is up to you. Consider two types of scenarios and think about what best suits your situation.
Scenario 1: Planning on starting a family. Want to buy their dream home within a few months. But, do not have a lot of savings and want to own a house and stop renting. The ideal solution would be to make a down payment less than 20% and accomplish your goal of owning your own home.
Scenario 2: Family of four, have money saved up for months and would like to buy a new home for their growing family. In this situation, the ideal solution would be to make a 20% or higher down payment. You could save the additional mortgage premium added to the loan amount. This will allow you to have lower monthly payments that will save you money for other expenses.
What is Mortgage life Insurance? Is a mortgage specifically to pay out any outstanding mortgage balance in the event the homeowner’s death or long-term disability. However, most borrowers waive this section when signing the mortgage approval documents.
- Covers the outstanding balance
- no medical examinations
- the policy can come into effect sooner if your heath prevents you from paying your monthly payments
- fixed premium rates
- automatic transfer of life insurance
- payout is fixed to your mortgage principle
- value of your policy decreases as you repay your loan so less coverage
- The lender is the policy beneficiary
- The policies usually have a maximum limit
What is Term life Insurance? Is a contract between you and the insurance policy holder, where you pay a fee for a premium. The insurance companies pay a lump sum amount to your beneficiaries upon your death. Like for instance, if you buy a $200,000 policy, upon your death the insurance company will advance this amount to your beneficiaries.
- Fixed premium and fixed payout
- Can consolidate other term insurance
- You own your insurance and policy
- Benefits your beneficiaries
- You can choose how to use the life insurance settlement
- One lump sum amount
- Cheaper rates
- Policy only comes into effect after your death
- Requires multiple medical examinations
What is Beneficial?
Additionally, the benefit of either mortgage life insurance or traditional term insurance is dependent on your needs. If you were the sole income bearer in the family, getting mortgage life insurance will give your family a mortgage free house. However, if income is not an issue in your family, then a traditional term insurance will help your family pay any outstanding debt you owe.
Once you know the benefits and the drawbacks, it will help you make your decision. RateShop is a brokerage that has many useful tools when it comes to mortgage and insurance. Our website can help you find everything you are looking for, from auto insurance, home insurance, travel insurance, life insurance, and business insurance. We provide, quick instant quotes, help you compare multiple quotes and same day policy options. Shop our rates now with Canada’s most trusted insurance brands!