Mortgage insurance

When buying a home, most of us take out a mortgage to finance the purchase. Depending on the size of the mortgage and other factors, there are types of mortgage insurance that may be involved, such as mortgage life insurance, mortgage loan insurance and mortgage disability insurance. 
*Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment. 
*Mortgage life insurance pays the remaining balance on your mortgage to the lender in the event of your death. 
*Mortgage disability insurance will make mortgage payments to your lender if you cannot work due to a severe injury or illness. 
==Mortgage loan insurance==
Typically, lenders require mortgage loan insurance for loans made to anyone that wishes to purchase a home with less than 20% of the purchase price. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance (also known as "mortgage default insurance") for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment.Who Needs Mortgage Loan Insurance? | CMHC, viewed March 11, 2015.
For mortgages with down payments between 5% and <20%, mortgage loan insurance costs between 2.8% and 4.0% of the loan valueCMHC, How much does CMHC Mortgage Loan Insurance cost?, viewed February 3, 2018; see also Mortgage Default Insurance or CMHC Insurance for an easier to understand premium table.. The insurance premium can be paid as a lump sum or, more commonly, added to the loan (in which case interest will be charged by the lender at the same rate than on the rest of the loan). 
Mortgages with a down payment of 20% or more do not typically require loan insurance, but CMHC offers it nonetheless. Scotiabank, for example, indicates that "default insurance may also be required ... when a borrower has more than a 20% down payment, if the property is in a remote location or if the borrower is qualifying under a special program considered a higher risk".Scotiabank, What you need to know about Mortgage Default Insurance, May 27, 2014, viewed March 11, 2015
==Mortgage life insurance==
Mortgage life insurance, also know as creditor insuranceRino Racanelli, Why You Shouldn’t Be Caught Dead With a Bank’s Mortgage Insurance, Canadian Money Saver, February 2012; updated in 2021: Seven Reasons To Avoid Bank’s Mortgage Insurance, CMS June 2021 issue, is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person listed on the mortgage passes away.ratehub.ca, Mortgage Life Insurance, viewed February 5, 2018 A more cost efficient and flexible way of achieving the same goal is to use term insurance.
===Comparison with term insurance===
An excellent alternative to mortgage life insurance is using term life insurance. The logic of buying term life insurance is to insure your paycheque, instead of your mortgage. If the paycheck is replaced by the life insurance proceeds, then mortgage payments -- and all the other things previously covered by your paycheque -- can still be paid. Also, for term life insurance, several quotes can be obtained (e.g. from a broker), and the cost will likely be lower than that of mortgage insurance. The following table compares the two options: Carola Vyhnak, Mortgage vs life insurance: Which is best?, Toronto Star, May 3, 2012, viewed January 14, 2017 Canadian Capitalist, Mortgage Insurance versus Life Insurance, April 22, 2009, viewed January 14, 2017 
Aspect 	Mortgage life insurance 	Term insurance
Provider 	Your mortgage lender 	Life insurance company
Competitive market 	No (you get one offer) 	Yes (you can get several quotes)
Who gets paid if you die 	The mortgage lender 	Your named beneficiary or your estate
Amount of payout 	Declining with mortgage balance 	Constant in nominal dollars, during the term
Flexibility in use of payout 	Applied to the mortgage balance 	Can be used for any purpose
Premium 	Typically higher, not guaranteed	Typically lower, guaranteed for the term
When you transfer or renew your mortgage	You have to renew your policy 	No impact
Easy to obtain 	Yes 	More work, but more flexible and typically less expensive
According to MoneySense magazine, "The only circumstance where mortgage life insurance — and its near instant approval — makes sense is when you have a disability, disease or lifestyle that makes it difficult, if not impossible, to obtain other insurance."Ask MoneySense: Do I need mortgage life insurance?, October 13, 2010, viewed January 14, 2017
==Mortgage disability insurance==
Mortgage disability insurance is a specialized version of disability insurance. In the event of a disability, it will cover your mortgage only, for a limited time. Individual disability insurance instead covers a percentage of your employment income and can last longer.
==Mandatory or optional?==
Mortgage loan insurance is mandatory for certain loans (see above).
On the other hand, the Financial Consumer Agency of Canada notes that the following insurance products are optional, and that the lender can't force you to buy them in order to obtain a mortgage:Financial Consumer Agency of Canada, Optional mortgage insurance products, modified December 1st, 2023, viewed December 26, 2024.
*Mortgage life insurance
*Mortgage liability insurance
*Critical illness mortgage insurance
==See also==
*Mortgages
==References==
==External links==
===Mortgage life insurance===
*Toronto Star, Mortgage vs life insurance: Which is best? (May 3, 2012)
*Canadian Capitalist, Mortgage Insurance versus Life Insurance (April 22, 2009)
===Mortgage Loan Insurance===
*Consumers — Mortgage Loan Insurance | CMHC
Category:Insurance
Category:Real estate
Category:Personal finance