Whether it be when you’re applying for a new mortgage or updating an existing one, mortgage default insurance is always a viable option to help protect your financial liabilities and obligations, especially when crisis strikes. Let’s take a look at some key points to know about insuring your mortgage, to help you better understand what is it and why you may need it.
“What Is Mortgage Default Insurance?”
Mortgage default insurance, also known as mortgage guarantee or home load insurance, essentially acts as a safety net on your mortgage payments by compensating lenders for losses due if you happen to default on payments. If a borrower fails to pay, the insurer must pay the lender the incurred amount. Mortgage default insurance, or MDI, is simply a type of life insurance on your home loan that covers the costs for both you and the lender if a certain event, such as death, disability or job loss occurs.
In most cases, lenders require mortgage insurance on all loans made to anyone purchasing a home with less than 20% of the purchase price. This is due to the fact that the Canadian Bank Act prohibits most federally regulated financial lending institutions from approving mortgages without insurance for amounts that exceed 80% of the value of the home.
“Is There A Maximum Purchase Price?”
Generally, the CMHC, Canada Mortgage and Housing Corporation, has a cut off price when it comes to mortgage insurance. Across Canada, the maximum purchase price of a home or property value must be below $1,000,000 in order to qualify.
“Who Arranges My Mortgage Insurance?”
During the process of finalizing your mortgage, your lender will arrange for the purchase of CMHC Mortgage Default Insurance. While you negotiate the terms of your loan with your lender, make sure to ask that the mortgage be CMHC insured, if so desired, as it is not required nor customary to automatically be included in your agreement.
“Does Mortgage Insurance Only Apply To Residential Properties?”
The interesting thing about mortgage default insurance is that it is quite flexible when it comes to the type of property being insured. The CMHC offers mortgage loan insurance services on a variety of property types, including single-family dwellings, duplexes, condominiums, mobile homes, rentals and even nursing homes. Depending on your specific lender, be sure to inquire as to what type of mortgage default insurance can be offered for your property.
“Who Pays For The Insurance?”
Not unlike most insurance agreements, there are premiums involved and in most cases, the lender will pass on the cost of the insurance to the borrower. These premiums can be paid in one lump sum up front, or can be opted to be blended in with your monthly mortgage payments.
“Why Do I Need Mortgage Default Insurance?”
One of the major benefits of having MDI is that it’s issued on an almost guaranteed acceptance basis. While most insurance agreements come with provisions and stipulations, mortgage insurance is generally a quick application and a few questions and details. This can be a major bonus for those who are uninsurable with a regular life insurance agency to cover their expenses due to poor health, or even those who work high-risk occupations and can’t qualify for disability insurance for their home’s payments.
By protecting lenders against borrower default, CMHC Mortgage Default Insurance creates an opportunity for Canadians to realize their dreams of homeownership.
When it comes to finalizing your mortgage it is important to fully understand all your financial liabilities. If you have any questions about applying for or you would like to look at adding mortgage default insurance to your current mortgage agreement, don’t hesitate to give me a call at 705-315-0516. I am always happy to help you better understand your mortgage options to take care of your family’s financial wellbeing.