One question you may have when purchasing your home is, “Do I need mortgage insurance?” The answer to this depends on the type of mortgage insurance and your loan. In Calgary, there are two types of mortgage insurance: high ratio mortgage insurance and mortgage critical injury/disability insurance.
High Ratio Mortgage Insurance
If you have a high-ratio mortgage, by Canadian law you are required to insure the mortgage. A high-ratio mortgage is one in which the homeowner has less than 20% down (previous to the change in mortgage laws in 2007, mortgage insurance was required for anyone with less than 25% down). Mortgage insurance is designed to protect lenders against potential default.
Currently, few companies offer mortgage insurance in Canada. Canada Mortgage, Canada Mortgage and Housing Corporation (CMHC), and AIG are the main providers in Calgary.
If you have a high-ratio mortgage, your Calgary mortgage broker can give you an idea of how much you can expect to spend each month on your mortgage insurance. As a general rule, however, the higher your down payment, the less you will spend on mortgage insurance.
Mortgage Critical Injury/Disability Insurance
For most Canadians, their home is their largest debt. In the event you or your partner dies or becomes disabled, you are still responsible for the payments on your home. Mortgage critical injury/disability insurance is designed to help cover mortgage payments if you or your spouse dies or becomes disabled. Depending on the policy, the insurance will either provide a lump sum or pay the mortgage payments for you directly.
The cost of mortgage critical injury/disability insurance depends on the amount of the mortgage as well as the age of the homeowner(s). The more expensive your mortgage and the older you are, the more you will pay for this type of insurance.
Unlike high-ratio mortgage insurance, this type of mortgage insurance is not required and is designed more for peace of mind. If you are self-employed or do not have life insurance, it’s a good idea to purchase mortgage critical injury/disability insurance.
If you are considering mortgage insurance in the event of death or disability, keep in mind that only the named policyholder is insured. So if you insure your spouse and you end up becoming disabled, most policies will not provide a payout. For this reason, most companies include both parties listed on the home’s title.
While mortgage insurance is only required if you have a high-risk mortgage, anyone wanting the peace of mind that their mortgage payments are covered in the event of a tragedy should also consider mortgage critical injury/disability insurance.
