Types of Mortgage Protection Insurance
Sometimes part of a borrower’s regular mortgage payment includes mortgage insurance costs. There are several types of insurance, some of which are required and others which are optional.
Mortgage Default Insurance
Borrowers who make a down payment of 20% or less must be insured by Canada Mortgage and Housing Corporation (CMHC) or a private insurer. This type of insurance is a credit risk management tool for lenders. The three largest private mortgage Insurers in Canada are CMHC, Genworth and AIG.
Unlike other types of mortgage insurance, mortgage default insurance insures the mortgage loan itself. If the person(s) who owe the mortgage defaults on their loan, this insurance ensures the mortgage lender will recover all outstanding principal of the mortgage.
Mortgage Payment Insurance
This type of insurance is offered by some financial institution and guarantees that if you lose your job or your income is reduced for some other reason, your regular mortgage payments will continue to be made. This may be a good type of insurance to purchase for a borrower who works seasonally or on a commission basis.
Mortgage Life Insurance
This is an optional insurance coverage you can obtain when you take out your mortgage. In the event the borrower(s) dies before the mortgage has been paid off, mortgage life insurance will cover the balance of the mortgage loan, usually up to a predetermined maximum amount.
Mortgage Disability Insurance
Some financial institutions also offer mortgage disability insurance that protects the borrower(s) is you are injured or become ill and cannot make your mortgage payment.
In some cases, purchasing one of these policies from an insurance company may be a better value than through a mortgage lender. Whether or not you decide to acquire the mortgage payment, life or disability insurance is a personal decision you should discuss with your lender, your attorney and any co-borrowers.
Before you purchase Mortgage Insurance, be sure to read the article Choosing the RIGHT Mortgage Insurance by Adam Stephanson. This article will help you better understand much of the fine print. It will help you make sure you are REALLY covered, rather than “just thinking” you are covered!
