All the types of insurance discussed during your mortgage application can be confusing. Here is a breakdown to help make sense of it all.
In this quick guide, we’ll break down the key insurances you’ll encounter during your home buying journey.
Default Insurance
What is it? Default insurance is a type of insurance that becomes mandatory when your down payment is less than 20%. In Canada, this insurance is provided by three major companies: CMHC (Canada Mortgage and Housing Corporation), Sagen, and Canada Guarantee. In the industry, these organizations are commonly referred to as “the Insurers.”
Why is it important? Default insurance is designed to protect your lender in case you default on your mortgage. It’s a safeguard that ensures lenders are not left at a significant financial risk if you’re unable to make your mortgage payments.
Cost and Payment: The cost of default insurance can vary based on your down payment and purchase price of the house. The good news is that you don’t need to pay for it upfront; it can be added to your mortgage. This eases the financial burden when buying a home with a smaller down payment.
Title Insurance
What is it? Title insurance is a policy that safeguards both property owners and their lenders against potential losses related to the property’s title or ownership. Every lender in Canada requires you to purchase title insurance on their behalf.
Why is it important? Title insurance provides protection in case there are issues with the property’s title, such as a dispute over ownership or undisclosed liens.
Cost and Payment: The cost of title insurance typically falls in the range of $250 to $300. Your lawyer will handle the purchase of title insurance for you as part of the closing process, ensuring that your property transaction is secure.
Mortgage Protection Insurance or Life and Disability Insurance
What is it? Mortgage Protection Insurance, as well as Life and Disability Insurance, are optional insurances, but they are worth serious consideration. These protect your family in the event of death, disability or illness. Here is an article I wrote about mortgage protection insurance: Mortgage Protection Insurance Explained
Why is it important? These insurances provide a safety net for you and your family in the event of unforeseen tragedy. Mortgage Protection Insurance can help cover your mortgage payments in case of job loss or disability, while Life and Disability Insurance offer broader financial protection.
How to Obtain: As your mortgage broker, I strongly urge you to consider these insurance options. I can guide you through the process and offer you the option to purchase Mortgage Protection Insurance as part of your mortgage approval. If you seek a more customized insurance plan, I can also refer you to a financial advisor who can tailor a solution to your specific needs.
Property and Fire Insurance
What is it? Your mortgage lender will require you to obtain property and fire insurance as a condition of your mortgage.
Why is it important? This insurance ensures that your property and its contents are protected from damage or destruction caused by unforeseen events like fires, storms, or theft. It’s a vital part of safeguarding your investment.
How to Obtain: Once you have an accepted offer on a property, you can start shopping for property and fire insurance. If you need a referral let me know! Having this insurance in place is a key step in the process of closing the purchase of your new property.
Contact Us to Discuss
If you have any questions or need further guidance on these insurances, please don’t hesitate to reach out. Your financial security and peace of mind are our top priorities.
Hi, I’m Jill, your mortgage pro. I am here to make the world of mortgages less confusing so you can feel confident in your financial decisions. Through my blog, I aim to provide you with the knowledge and guidance you need to make informed decisions. Your financial peace of mind is my top priority.
