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.