There are many insurance options available for a mortgagor. Most of us already know about the default insurance, but there are more.
In Canada a large amount or foreclosures (power of sale) happen due to loss of income or death. To stay protected against those odds of life, apart from normal life insurance there are other insurances specially designed for a borrower. Let us have a look at the insurances related to mortgages.
Mortgage Default Insurance:
In popular term it is also known as CMHC insurance. Apart from CMHC there are other default insurers available like Genworth or Canada Guaranty. Generally if we have less than 20% as down payment to buy a home then most of the lenders need this insurance.
Some lenders require default insurance even if a borrower pays more than 20% downpayment. In those cases normally the interest rates are particularly low.
A mortgage default insurance helps a borrower by giving them access to inexpensive home financing and ability to buy a home with low down payment (as low as 5%).
Default insurance also helps the lenders by ensuring that their investment is safe – in case of a borrowers defaults. The insurance premium is paid by the mortgagor and coverage goes to the lender. The insurance premium often added to the mortgage total. You can find the premiums here.
If the mortgages are insured against default then it can be easily sold to the investors and the lender can recover the funds to invest them again.
Mortgage Life Insurance:
It is an expensive type of life insurance. The difference between a regular life insurance and a mortgage life insurance is that the payment goes towards the mortgage balance – if it is a mortgage life insurance. You can find here a comparison between Life insurance and mortgage life insurance.
Although it appears to be expensive and not so much useful – it is the easiest option for the family members to remain in the house as the mortgage is paid off without any hassle.
Mortgage Disability Insurance:
This is a short term insurance if in case a borrower is unable to make the regular payments due to loss of income arising from a disability.
This type of insurance covers half to full mortgage installment and property taxes as well, for a limited period of time.
Mortgage Critical Illness Insurance:
This is also like the mortgage life insurance. In case of a critical illness, the mortgage (with a maximum limit) will be paid off.
A mortgage is probably the biggest loan in a person’s life. It is always better to stay insured. We would like to say that talk to a professional and make a right decision.
Mortgagor: In simple word it defines the borrower.