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Mortgage Insurance

Buying a home is an expensive investment. Mortgage insurance helps offset some of the risks associated with the purchase of a property. It is important to understand the different types of mortgage insurance. The major categories of mortgage insurance are mortgage default insurance, mortgage life insurance, and mortgage title insurance.

Mortgage default insurance is mandatory if your down payment is less than 20% and pays out to the lender, helping them offset their risk in case of a default on the loan. Mortgage life insurance policies pay out to your beneficiary and help offset your risk and protect your loved ones and investment in the event of your passing. Mortgage title insurance protects you and the lender from financial losses in case there are issues with the property title at the time of sale.

Buying a home and applying for a mortgage can be an exciting and stressful time, and applying for mortgage insurance on top of that can be an additional challenge. For all your mortgage insurance needs, trust the experienced team at Mortgage Squad Agents to find a solution that is right for you.

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    Whether you are looking for mortgage guidance or ready for quote, we will help you get the right insurance for you.

    What is Mortgage Insurance?

    Mortgage insurance is a financial protection that provides coverage to pay the mortgage in the event of difficulties. There are a variety of different mortgage insurance policies that offer a range of protections, each with their own advantages. Depending on your situation you could go for an insurance policy that protects your mortgage loan and lender, or one that pays out directly to you or your beneficiary. Some form of insurance may even be required by your lender or the government. The major categories of mortgage insurance are:
    • Mortgage Default Insurance: Pays out directly to the lender in the case of a default and helps to cover their risk. This is generally the most common type of mortgage insurance and is mandatory if the down payment is less than 20%. It may be referred to simply as ‘mortgage insurance’ or ‘CMHC’.
    • Mortgage Life Insurance: Pays out directly to the designated beneficiary in the event of death of the policy holder. Some policies offer critical illness coverage that pay out in the event of certain serious medical issues.
    • Mortgage Title Insurance: Provides indemnity or protection for lenders and homebuyers from financial losses in the event of issues with the title when the property is sold.
    A mortgage life insurance policy helps protect your investment in your home and can be a great tool to give you peace of mind. Mortgage default insurance can seem like an unnecessary additional expense but it helps to keep the housing market stable by reducing the risk for lenders. For all your mortgage needs, trust the experienced team at Mortgage Squad Agents to find a solution that is right for you.

    Mortgage Default Insurance

    Mortgage default insurance protects lenders, from losses in the event of a default on a mortgage by the borrower and is required for all mortgages where the down payment is less than 20% of the property value. It is offered by three mortgage insurance providers in Canada, the Canada Mortgage Housing Corporation (CMHC), Canada Guaranty, and Genworth Financial. Saving up for a down payment is difficult but mortgage default insurance grants buyers the opportunity to purchase homes with a down payment of 5% of the value of the property. This allows a greater number of people access to the property market, which helps to keep the housing market stimulated and active. The total cost of your mortgage default insurance is calculated based on the size of your mortgage loan, and is typically in the range of 2.50% and 4.00% although it can be outside of those values. Since your down payment defines the size of the loan, you have an incentive to have a larger down payment. The smaller your down payment is, the larger your mortgage loan and mortgage default insurance will be. Paying your mortgage default insurance is usually done in installments, and can be paired with your mortgage loan repayments, but can also be paid off in a lump sum.

    Mortgage Life Insurance

    Mortgage life insurance is a type of mortgage protection that uses insurance policies to protect you. This is different from mortgage default insurance as that type of mortgage insurance protects the lender whereas mortgage life insurance pays out to you or your designated beneficiary. Depending on your lender or situation it may be necessary to get life insurance. Even if it isn’t required it can still be to your benefit to purchase. There are different types of life insurance policies that you can get:

    Tips for Getting a Mortgage Default Insurance

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    Critical Illness Insurance

    While not strictly a life insurance policy, this type of mortgage insurance provides coverage in the event that you are diagnosed with an illness that is covered in your policy. The money from this can be used to pay off your mortgage, cover medical expenses, or for other expenses. Critical illness insurance can sometimes be packaged together with your term or permanent life insurance, and the range of illnesses it can cover may also be negotiated.

    Permanent Life Insurance

    This type of mortgage insurance is a permanent insurance that covers you for life. Term life insurance expires at the end of the term whereas permanent life insurance gives you continuous coverage for the whole of your life. Permanent life insurance can seem expensive when compared to other mortgage insurance policies but it covers you for life, and a well negotiated policy has the potential to be cheaper further down the line. Permanent life insurance can have premiums that stay steady or decrease over time, depending on how it is negotiated and the payout.

    Term Life Insurance

    Term life insurance covers the policyholder for a defined period of time and typically ranges anywhere from 5 years to 30 years. If the policy holder were to pass away during this covered term the insurance policy would pay out to the designated beneficiary. Premiums with this type of mortgage life insurance can be low so while coverage expires at the end of the term, they can be a great low cost option.

    While this type of mortgage insurance may cover a different term or period than your mortgage loan, it may be simpler to get insurance that covers the term of your loan rather than having to negotiate another term to cover the remaining term of your mortgage. Your lender may require you to purchase a term mortgage life insurance that pays out the balance of the mortgage.

    Mortgage Title Insurance

    Mortgage title insurance is a type of policy that functions as an indemnity insurance. This type of mortgage insurance protects lenders and homebuyers from financial losses in the event of issues with the title when the property is sold. Before closing a mortgage a title search is conducted to ensure that there are no issues preventing the owner from selling, such as liens, conflicting wills, or unpaid back taxes.

    Having mortgage title insurance that covers indemnity losses can protect you from significant risk and financial costs. Homes in foreclosure may have outstanding issues so getting a policy that covers you can be to your benefit. Some lenders may require the purchase of mortgage title insurance when you are going through a sale.

    Is it harder to get a mortgage if I am self employed?

    Obtaining a Self-Employed Mortgage can be more difficult than a traditional mortgage as the borrower has to take extra steps to prove to the lender that they are capable of maintaining regular payments on their mortgage. It is possible that depending on the financial institution, that Self-Employed Mortgages are not offered at all. Where they are offered, there is also the chance that banks will significantly increase the interest rates for these loans, making them a more difficult consideration for borrowers. To give a better chance at being approved, lenders are expected to offer a large down payment, up to 20% or higher, as well.

    Another difficulty associated with Self-Employed Mortgages is the lack of a T4. A full time Employee can provide proof of income through a simple T4, however a self-employed individual must provide a stated income form, which shows the amount the potential borrower claimed to have earned, and then must provide documentation which can prove the stated amount is accurate.

    Lenders will also apply the Debt Service Ratio when considering your eligibility for a loan. This is a measurement which determines your ability to maintain regular payments on a loan after all your financial responsibilities have been considered. These include monthly bills, car loans, lines of credit, student debt and any other loans.

    If after considering these other factors the bank is confident that you are able to meet their requirements for regular payments, you will be eligible for a loan.

    Commonly Asked Questions

    The major categories of mortgage insurance are mortgage default insurance, mortgage life insurance, and mortgage title insurance. Mortgage default insurance protects the lender in the event of a default, mortgage life insurance protects your beneficiary in the event of your death, and mortgage title insurance protects you and the lender when you sell your property.
    Mortgage default insurance is mandatory in Canada for all mortgages with a down payment that is less than 20% of the property value. Mortgage life insurance is not mandatory but your lender may require you to purchase it. There are different types of mortgage insurance, each with their own benefits and uses.
    Mortgage insurance can be beneficial for you. Mortgage default insurance may be required and helps lower the risk for the lender. Mortgage life insurance policies, from term life insurance to permanent life insurance and even critical illness insurance, help to reduce the risk for you. Your situation will determine how useful these policies are for you.
    Mortgage default insurance pays out to the lender whereas life insurance pays out to the designated beneficiary. When packaged with your mortgage these life insurance policies are considered a form of mortgage protection. Life insurance policies can be purchased with or without a mortgage and can cover a term or your whole life.

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