Did your lender talk to you about Mortgage Insurance?

Protect what matters most, not just your house

When you buy a home, you need a way to help protect yourself and your family financially, no matter what happens.

Your bank/lending institution probably talked to you about mortgage insurance (also called creditor insurance) when you bought your house. It means if you die, your mortgage is paid off.

Mortgage Insurance vs. Individual Life Insurance:

But is mortgage insurance the best option for you?

If you want to protect more than just your home, individual insurance may better suit your needs. Individual insurance generally provides more control, options and benefits to help you financially protect what matters most.

By comparing mortgage and individual life insurance, you ensure you’re giving yourself and your family the type of insurance protection that meets your needs.

I’m a trusted professional who can help you build a financial security plan to help protect your mortgage and what matters most in your life.

Mortgage Insurance vs Personal Life Insurance

You’re finalizing your mortgage – a huge commitment that comes with a great deal of responsibility. It’s natural to be concerned that your family might lose their home if the income earner was no longer around to make the payments.

You have a couple of options, both involving affordable monthly payments. Lending institutions offer you mortgage insurance – also called creditor insurance – at the time you sign the mortgage. The other route is personal life insurance that you can buy through me.

  • It’s important to research the differences between mortgage insurance and personal life insurance.

Mortgage insurance is convenient. You can apply for insurance coverage at the same time you’re getting your mortgage. This insurance is used to cover the outstanding mortgage balance if you die. You can also include your spouse in the coverage.

Mortgage Life Insurance

However, it’s important to research the differences between mortgage insurance and personal life insurance to help ensure you’re giving yourself and your family the type of insurance protection that meets your needs.

You do have to qualify for personal life insurance, a process that may include verification that you and your spouse are in good health. Once you start paying the premiums, you’re covered for the term of the policy, with automatic renewals. And as long as premiums are paid as required, only you can cancel the policy.

The benefit payout

With mortgage insurance, your creditor is the named beneficiary and the proceeds are paid to the creditor, not your family. If you or your spouse dies, the outstanding amount is paid off. As the mortgage is paid down the benefit coverage decreases.

Personal life insurance allows you to choose your beneficiaries. And the lump-sum benefit payment is paid tax free on the death of the life insured even if the mortgage is paid off. This type of coverage provides added financial security beyond just the mortgage.

Monthly premiums

With mortgage insurance, the coverage decreases each month until the entire principal is paid off and the premiums stay the same. With personal life insurance, your coverage doesn’t decrease as the mortgage is paid down and you can choose a plan that will keep the premium you pay level for 10, 20 years or for your lifetime.

Flexibility

Generally, most lending institutions offer non-convertible term life insurance where the lending institution owns the mortgage insurance policy. If you switch mortgage lenders, your policy is void. Given that you’ll be older than when you originally signed your mortgage or your health may have changed, the premiums with a new lender could be higher or you may not qualify for new coverage.

If you already have a personal life insurance policy in place and you buy a bigger home, you may want to consider increasing the coverage. One option may be to leave the existing policy in place and take out a second one to increase overall coverage for your family.

Take time to compare and carefully weigh both options. I can provide expert guidance.

Are You Ready to Dive into a Mortgage?

All homeowners dream of burning their mortgage papers after making that final payment. Smart planning and prudent decisions will help make that day arrive sooner than you’d think.

However, before plunging into the real estate market, you should estimate how much you can afford. There are many online tools that can help you do this.

Lenders want to make sure your total monthly housing costs – including mortgage payments, taxes and utilities – do not exceed one-third of your household’s total gross income and that your total debt load (including car loans) is not above 40 per cent of your household’s total gross income. All lenders have software programs that can compute how much they’re willing to lend and how much house they expect you can afford to purchase.

That first big payment

A big down payment could be a great way to reduce the size of a mortgage. But people who don’t have a lot of money saved – and don’t want to wait to build a larger down payment – can take on a high-ratio mortgage. Borrowers in Canada with less than a 20 per cent down payment must purchase mortgage insurance, which protects the lender in case of default. This could cost up to 3.35 per cent of the value of the mortgage and typically gets tacked onto the principal.

Options to consider when choosing a mortgage

It’s important to consider these topics when choosing a mortgage:

  • Fixed or variable interest rate
  • Amortization period
  • Length of term
  • Open or closed

The fixed-versus-variable-rate decision has long been debated. A few years ago, Moshe Milevsky, a professor at York University, authored a report which suggested prospective homeowners go with a variable interest rate mortgage.1 But since variable rates could go up any time, many borrowers opt for the more stable fixed-rate mortgage.

Today, the advantage of variable rates is uncertain. Yes, they remain below fixed ones, but the gap has become razor thin – to the point where potential savings may not justify the risk of variable rates climbing.

Risks not so variable

For small increases in the variable rate, the payment size may remain the same. The only difference would be an increase in the amount going to pay the interest portion. However, if rates increase significantly, even by 1.5 per cent, the lender may increase the payments.

Before deciding on a variable rate, make sure the lender explains all of the possible scenarios. Specifically, find out what interest rate changes will trigger higher payments. You may be able to include the option to lock into a fixed-rate mortgage at any time, but keep in mind that by then the longer-term rates may have changed.

Fortunately, you can use a mortgage calculator to easily determine the savings of going variable versus fixed. You may decide that the upside isn’t enough to forgo the certainty provided by a fixed-rate mortgage.

Mortgage

Coming to terms

Mortgage terms can range from six months to 10 years. Generally, the interest rate rises with the length of the term.

The advantages of an open mortgage

Fixed-rate mortgages are generally closed. They typically allow for yearly lump-sum prepayments up to 20 per cent of the original mortgage, depending on the lender – a very important detail you ought to confirm before signing. You may also be able to increase your regular payments, as much as doubling them – perfect for people with steadily rising incomes.

Paying off the mortgage all at once or breaking it up to get a better rate often triggers financial penalties. Some lenders do offer open mortgages, which allow borrowers to pay off some, or all, of the loan at any time. However, there’s a catch: the interest rate may be significantly higher.

If there’s a chance you’ll come into some money or sell the mortgaged home before the term expires, an open mortgage could make more sense. If you plan to move before the term expires, a portable mortgage (one that can be transferred to your next home) may also be an option worth considering.

  • Of all the variables to choose from, a shorter amortization period offers the fastest route to a mortgage-burning party.

Which should you choose: A long or short amortization period?

Of all the variables to choose from, a shorter amortization period offers the fastest route to a mortgage-burning party. By law, Canadians can negotiate a mortgage that extends to 25 years. Long amortization periods are popular, especially with first-time homebuyers, since they could lower the amount of each mortgage payment. However, those lower payments could come with a price – higher interest rate costs.

Anyone taking out a mortgage ought to become very familiar with a mortgage calculator. Try plugging in shorter amortization periods and compare the increase in payments with the drop in interest costs. The sweet spot is often around 20 years, where the increase in payments isn’t so big but the savings in interest costs could be significant.

Accelerated payments could help you pay off your mortgage faster

You can pick weekly, bi-weekly and monthly payments, depending on the lender. More frequent payments will mean you’ll pay less interest over the life of the mortgage with the same interest rate.

You can also opt for “accelerated” payments that shave time off your total amortization period. While giving your lender payments a few days earlier doesn’t save much interest, accelerated payments can increase the total payments you make each year­ ­– helping you pay off your mortgage faster.

If you value simplicity, increase your total annual payments but add them up and divide by 12 to compute the equivalent monthly payment.

It’s time to get started

Once you’ve decided to purchase a home, consult with me, I can show you how and why you should build your mortgage into your financial security plan.

Protect What Matters Most With Life Insurance

When you think about protecting those you care about – your spouse, children, family members – you’ve probably considered life insurance.

But you might have wondered, “Can I afford it?” After all, life insurance is expensive, right?life-insurance-cup-coffee-day

Surprisingly affordable

If you can buy a cup of coffee each morning, you can probably afford to protect your family with term life insurance.*

If the unexpected does happen, your family can use the proceeds to:

  • Pay off large debts, like a mortgage
  • Cover daily living expenses
  • Continue plans you’ve made for the future, such as an education fund for the kids

Life insurance proceeds help ensure your family members are provided for and can achieve their long-term goals, even if you’re not there to support them.

Talk to me today and start protecting your family for less than the cost of a daily cup of coffee.

The example provided is not complete without the London Life illustration, including the cover page, reduced example and product feature pages all having the same date. Read each page carefully as they contain important information about the policy
*This comparison is based on London Life term 10 life insurance, male and female, up to age 40, non-smoker, standard risk, monthly premium payments. Monthly premium depends on your age, amount of coverage and general health information. Life insurance coverage amount represents the policy’s death benefit. Rates as of November 2014. Term 10 life insurance premiums increase on renewal after 10 years. Cost of coffee is based on $1.60 per cup.