Know Everything About Optional Mortgage Insurance Products In Canada
To overcome the unpredictability of life is impossible. But we can safeguard ourselves and our loved ones with insurance. Read this blog to find out what optional mortgage insurance products are in Canada.
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Life is unpredictable. Humans do not possess the power to contemplate our future. If you also feel insecure while availing of a mortgage, here is our 2 pence to put all your worries to an end.
As per a recent study conducted by the Financial Services Commission of Ontario (FSCO), Ontarians owe about $1.4 trillion in mortgage loans. It shows how massive the mortgage industry is in Canada.
But the fear of not being able to service the monthly mortgage payments strikes everyone. It led to the development of mortgage insurance products that aim to mitigate this fear. Let’s delve deeper and walk you through the different mortgage insurance products.
What Is Mortgage Insurance?
Mortgage insurance acts as a guarantee for the lenders to assure them their money is secure. They will get their money back even if the borrowers face unfortunate events, such as death, disability, critical illness, etc.
It acts as a shield for the lenders and relieves the borrowers of their burden to pay back the owed money even if unfortunate events occur. Presently, several optional mortgage insurance products exist in the market. Let us gain a thorough understanding of them.
Optional Mortgage Insurance Products in Canada
Are you the sole/ primary earner in your family?
Do you feel your other family members will not meet the monthly mortgage payments without your income?
Browsing the different optional mortgage insurance products would help.
Below is a list of some of the typical optional mortgage insurance products:
Mortgage Life Insurance
You never know what’s coming. We plan for a hundred years but often cannot see them through.
A mortgage life insurance is a popular mortgage insurance product that is optional and makes mortgage payments to your lender in the event of your death.
If you have a few dependents in your family, like old parents, spouse, or young kids who will live in your house after your demise, buying mortgage life insurance will help you enormously.
The death benefit received under this policy at the time of your demise:
- Will always be equal to your outstanding mortgage loan
and
- Will keep on reducing as you keep paying the outstanding loan
Your family cannot use this death benefit other than paying off your outstanding mortgage loan.
Mortgage Critical Illness Insurance
This insurance product pays off the mortgage payments if you suffer from any critical illnesses listed by your insurer.
For example, a critical illness insurance policy of RBC Insurance provides for over 30 serious illnesses, such as Loss of speech, Major organ transplant, kidney failure, heart attack, etc.
You are diagnosed with any critical ailment, and you cannot service your monthly mortgage payments. The insurance company will make the payments. They will start making mortgage payments on your behalf or pay off your outstanding loan.
Mortgage Disability Insurance
A mortgage disability insurance works the same way as mortgage critical illness insurance to ensure your mortgage payments remain unaffected even if you have sustained any permanent disability.
What is a C. M. H. C (Canada Mortgage and Housing Corporation) Mortgage Insurance?
It is the most bought mortgage insurance product. Unlike the above mortgage options, this insurance product becomes compulsory in certain events.
If you have scooped up less than 20% of the purchase price of the property, then you will be under a compulsion to buy this insurance product. Presently, three different lenders in Canada are offering this:
- Canada Mortgage and Housing Corporation (CMHC)
- Genworth Financial and
- Canada Guaranty.
CMHC is the apex organization and frames all the rules/ standards for this type of mortgage insurance.
A CMHC mortgage insurance helps create a robust demand for residential houses by making the market more accessible and open to many buyers.
Is an Optional Mortgage Insurance Similar to C. M. H. C (Canada Mortgage and Housing Corporation) Mortgage Insurance?
The answer is NO. Both these insurances differ from each other. However, they will both protect your lender from default risk.
Optional Mortgage Insurance
As the name suggests, optional mortgage insurance is discretionary and entirely depends upon your choice. You will never have to buy these insurance products throughout your mortgage tenure.
C. M. H. C Mortgage Insurance
Sometimes, this type of mortgage insurance is mandatory. If you are short of cash and will pay less than 20% of the property’s purchase price as a down payment, it will be compulsory for you to buy CMHC mortgage insurance.
This insurance protects the lenders and pays them in default. Most lenders operating in Canada put it as a condition and make it mandatory for the borrowers to buy a CMHC mortgage insurance policy if they pay less than 20% of the purchase price.
How Will You Pay Premium on The Different Mortgage Insurance Products?
Be it the optional mortgage insurance policy or the compulsory one, you will pay different premiums.
These premiums are monthly and get added to your mortgage payments.
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