There are many types of insurance involved when buying and owning a house and I have found this leads to confusion among my clients. In this commentary I will summarize each one and highlight what role it takes.
Mortgage Default Insurance
This type of insurance allows home buyers to purchase a home with a low down payment.
There are two types of mortgage options:
- conventional mortgages – on loans with a minimum 20 per cent down payment
- high-ratio mortgages – on loans with less than 20 per cent down payment
In Canada, mortgage insurance is required federally on high-ratio mortgages – that is, mortgages with a down payment of 20 per cent or less. This insurance, which protects the lender in case of borrower default, gives lenders the flexibility to offer borrowers with low down payments the same low interest rates they would offer to homebuyers with more equity.
Title Insurance
Title insurance works like a standard insurance policy. It protects against future discoveries about a property, some title-related and some non-title-related. It is a form of indemnity insurance for a mortgaged property that covers the loss of an interest in a property due to discovered legal defects. There are two types of title insurance:
- Owner’s title insurance: This is a policy where either the buyer or seller may pay the insurance premiums to protect the buyer’s equity in the property. This title insurance may provide coverage for title and some non-title issues. The purchaser of the insurance must disclose any known issues or defects regarding the property’s title or non-title items to the insurer prior to purchasing a policy.
- Lender’s title insurance: The borrower usually pays for lender’s title insurance even though it is for the sole benefit of the mortgage lender. This type of title insurance gives protection to the lender with respect to the priority, validity and enforceability of the mortgage. If your lender requires a title insurance policy as part of the transaction, that policy is for the benefit of the lender and will not cover you as the buyer.
Homeowners Insurance
This is a form of property insurance designed to protect an individual’s home against damages to the house itself, or to possessions in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property. Lenders will require that this be setup prior to funding the mortgage.
Mortgage Life Insurance
Mortgage life insurance is a form of insurance specifically designed to repay a mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy would pay out a capital sum that will be just sufficient to repay the outstanding mortgage. There are many forms of this insurance and you are best talking with an insurance broker about your options.
Should you have any questions about this commentary, please let me know
This Article was written by our friend Bob Alexander. Please Contact Bob Alexander For Further Information About This Commentary or To Discuss Your Mortgage Action Plan. To receive his monthly commentary directly send an email to bob@mortgagedoctors.ca
Your Mortgage Doctor
Bob Alexander, B.Comm, CMA, AMP
Phone: 403-875-5270
Email: bob@mortgagedoctors.ca
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