10 Jul 2015
Navigating Mortgage Insurance
There are various types of insurance you may be required to purchase or greatly consider when establishing your first mortgage agreement. Here are the four main types you may encounter.
1. MORTGAGE DEFAULT INSURANCE
Mortgage default insurance is usually for those who put down less than 20% of the purchase price on a new home. This insurance is for the benefit of the mortgage lender as it covers any loss they may incur if you default on your mortgage payments. There are 3 insurance providers in Canada who all serve this common purpose; CMHC, Genworth, and Canada Guarantee. Listed below are the set percentages of the mortgage total you will be required to pay in installments combined with your regular monthly mortgage payment:
- 95% (or 5% down) 3.60%
- 90%-95% 15%
- 85%-90% 40%
- 80%-85% 80%
These rates are the standard for mortgage default insurance. If you are self-employed, are purchasing a second home, or are investing in a vacation property these rates could differ.
2. TITLE INSURANCE
Some lenders require you to purchase title insurance to protect them in case the zoning of your home is not compliant with municipal regulations. An example of when title insurance may be needed is if your garage has been accidently built over the neighbour’s property line. In this case, an easement can be requested but sometimes the neighbour and/or city will not approve it. The title insurance in this case would cover the cost of moving or rebuilding the garage in the appropriate place. The cost is approximately $249 + GST and is collected at your lawyer’s office. You can also upgrade to a complete title insurance policy to also be protected from identity theft, mortgage fraud, or if there were renovations done in the home which do not meet building code.
3. HOME INSURANCE
If you use a mortgage to purchase a home, you are required to purchase home insurance as well. This policy protects from various things that could go wrong in your home. Before your lawyer finalizes the mortgage agreement you will need to provide proof that this coverage has been purchased. The cost of a home insurance policy depends on the company you purchase through and the specifications of your home. You can obtain quotes from different companies to find the best rate.
4. LIFE/DISABILITY INSURANCE
A mortgage is likely the largest debt you will ever incur. In light of this, a life/disability insurance policy is a very smart investment to protect your beneficiaries if the worst is to happen. Mortgage professionals will almost always offer this policy, but there is no legal obligation to accept what they offer. Take some time to do your research, but also know that disability is the number one reason for mortgage default in Canada, so ensure you are taking appropriate precautions and review your coverage with care.
So there it is! A super quick recap of the different types of mortgage insurance you will encounter. If you have any questions or would like to discuss the process in more detail, please reach out to us at Dominion Lending Centres!