The most common form of mortgage insurance protects against mortgage default and is provided either through CMHC or one of the private insurance providers. This type of insured mortgage or default mortgage insurance is required on all bank or institutional mortgages where financing requirement is greater than 80% of the value of the real estate property.
The premium associated with default insurance is added to the cost of borrowing and the amount of the premium is directly proportioned to the amount of financing above 80% of the property value.
The other forms of mortgage insurance are provided to cover off the mortgage debt if certain events occur.
For instance mortgage life insurance products are designed to cover off the outstanding balance owing on a mortgage so that in the event of the passing of a borrower, the mortgage can be retired by the life insurance policy.
Mortgage disability insurance is designed to cover off your mortgage payments in the event that you are unable to work due to accident or illness that is covered in the policy.
The fourth primary type of mortgage insurance comes in the form of payment insurance to once again cover the costs of the mortgage is your income become significantly reduced to the point where you can no longer make the scheduled mortgage payments. This can cover off circumstances such as lay off or short term unemployment.
Regardless of the type of insurance program, there are going to be differences in the terms and rates being offered. While this is a very competitive market, its still going to be important to invest or not invest in these risk reduction tools on a cost benefit basis.
To better understand any mortgage insurance programs that are relevant to your situation, you may want to first discuss with your mortgage broker so that the most information decision regarding mortgage insurance options can be made.
For instance, the net cost of an insured mortgage versus uninsured mortgage with respect to mortgage default insurance can be considerable. And there is also the considerations of what sources of funds can be used for the 20% equity requirement for a non default insured mortgage.
For these and other mortgage insurance considerations, please give us a call and we’ll go over your situation with you in as much detail as is required to make the best decision.
In the residential mortgage financing world, the term mortgage insurance is used in two totally different connotations, namely mortgage life insurance that insure the life of the borrower and insured mortgage programs that insure the actual mortgage against default.
In the case of mortgage life insurance, basically any type of life insurance program can name the mortgage lender as the beneficiary in the event of borrower passing whereby the amount to be received from the life insurance policy would be applied to the outstanding mortgage balance. This can also include disability insurance to cover the mortgage payments in the event that the borrower is disabled from earning a living for a period of time.
There are also life insurance programs specifically designed for mortgage amortization whereby the borrower or borrowers are only ever insured for the amount of principal outstanding on the mortgage at a given point in time. The premiums are also specifically calculated to allow for the declining coverage balance over time. Mortgage life insurance is typically an option provide to the borrower at the time time the mortgage commitment is issued.
An insured mortgage in contrast is insurance that is provided by one of the three mortgage insurers in Canada to insure the mortgage against loss with the mortgage lender once again being named as the beneficiary.
The regulations governing tier one and two banks in Canada restrict mortgage lending above 80% of the property value unless mortgage insurance to insure the actual mortgage is in place.
For a home purchase, a new mortgage can be issued up to 95% of the property value under an insured mortgage program, provided that the applicant or borrower meets all the requirements of the mortgage lender as well as the mortgage insurer.
There are different rules in place for insured mortgages used for refinancing a residential home mortgage and still other specific rules related to insured mortgages for rental properties.
Mortgage life insurance and mortgage disability insurance are more of a benefit to the borrower to protect their family from having to deal with an outstanding mortgage balance if they were to pass on expectantly.
The insured mortgage programs are effectively providing the opportunity for a greater percentage of the population to be able to purchase a home with very little money down.
To get more information on both types of mortgage insurance, we suggest that you give us a call and book a time to speak directly to a member of our team and get all your Toronto mortgage insurance questions answered.