The mortgage process can be confusing to say the least.
Most of the time our attention is focused on the rate and terms but there are many pieces to the mortgage and the types of insurance are something that deserve a minute of your time.
Mortgage default insurance. Mortgage default insurance is usually, though not always, for those who have less than 20% to put down on a new home.
This insurance is for the benefit of the mortgage lender. If you default on your mortgage, the lender has insurance that this third party will cover any losses the lender then incurs. There are three insurance providers in Canada; CMHC, Genworth and Canada Guarantee. They all serve the same purpose.
You pay them a set percentage of the mortgage amount.
• 95% (or 5% down) 4.00%
• 85%-90% 3.10%
• 80%-85% 2.80%
(Please note that these rates can be very different for those who are self-employed, purchasing a second home or those purchasing a vacation home so please check with your mortgage professional.)
The mortgage default premium is added to your mortgage so don’t worry that you will have to provide a cheque up front.
Title insurance. Title Insurance is becoming increasingly more common these days.
Lenders may require it and if so the cost is about $249 plus GST and will be collected at your lawyer’s office.
Title insurance protects the lender in case your home is not compliant with the municipal zoning. Say for example that a garage was built which actually is 2 ft. into the neighbour’s lot. If the neighbour and the city will not agree to an easement which would allow for this, then the title insurance policy kicks in and they will do what has to be done to make things compliant.
For a small additional fee you can upgrade to a complete title insurance policy and be protected from things like identity theft, mortgage fraud or if the home had renovations done which were not up to code.
Home insurance. If you have a mortgage then you are legally obligated to have home insurance in case of fire or the myriad of other things a good home insurance policy covers.
You will be required to provide proof of the coverage to the lawyer before the mortgage funds.
Life/disability insurance. Your mortgage is likely your biggest debt and it’s so important to ensure that your people are protected in case the worse happens.
You will be offered a policy by your mortgage professional during the process. There is no legal obligation to accept so don’t let them convince you otherwise.
BUT, you really owe it to yourself to ensure you have sufficient coverage.
Disability is the number one reason for mortgage default in Canada so please for the love of Pete take time to review your coverage.
There you have it. The four types of insurance your mortgage professional will need to tell you about.
As always dealing with a qualified professional is the best way to navigate the tricky world of mortgage.
Pam Pikkert is a mortgage broker with Mortgage Alliance – Regional Mortgage Group in Red Deer.