Mortgage Insurance For First Time Homebuyers
Buying your first home is a daunting prospect. Between the bankers, realtors, mortgage brokers, lawyers and home inspectors you are surrounded by an industry with it's own jargon and individuals with their own agenda's. Focusing on the logistics of buying and moving in, you probably haven't given any thought to what happens to your mortgage in the event of your death or inability to work. Most people don't want to be a burden to their loved ones and want the mortgage to be paid off in either eventuality. So the question you are probably asking right now is "am I covered?" The answer may be more complicated than you think, so let's run through some typical scenario's.
I bought my first home with < 20% down payment
The Good news!
Chances are you already have basic mortgage default insurance. You have what is know as a high-ratio mortgage. It is compulsory for Canadian mortgage lenders to include government backed loan insurance typically provide by CMHC. The scheme was put in place by the Federal goverment to protect lenders against mortgage default and offer loans to people with a little as 5% deposit (as of Feb, 2016 a 10% deposit is required on the portion of the loan over $500,000).
The Bad News!
- Mortgage default insurance is expensive and you are paying for it. Depending on the value of your mortgage your lender has added 1.8-3.6% of the value of your mortgage to your total loan and you are pay this as part of your mortgage payment every month.
- Mortgage default insurance is only triggered if you default on your mortgage. Defaulting on your loan also means the lendor has the right to take it's security back (your home) to recover the debt owed.
- The lender receives the money directly, your family receives nothing.
What Are Your Options?
Until you can pay off 20% of the value of your property you are stuck with mortgage default insurance with all it's limitations. However, here are some complimentary services you might want to consider.
- Life Insurance, is a low cost way to protect your loved ones financially in the event of your death. Taking out a seperate life insurance policy could enable your loved ones to continue to pay the mortgage, or even pay off the mortage completely, and keep your house.
- Disability Insurance, similar to life insurance is a way to protect your loved ones financially in the event that you are unable to work due to disability.
What works best for you is a a question of personal choice and unique to every individuals circumstances. At Brian A. Price we are experts at providing the best possible solution for our clients and would be happy to discuss your needs and present a range of options for you to consider.
I bought my first home with > 20% down payment
First of all, congratulations! Your circumstances are very different from the typical first time buyer. You have what is known as a conventional mortgage. You can learn more about your mortgage insurance options here...