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What Buyers Need to Know About Mortgage Insurance

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Chance are you’ve heard the expression about ducks . . . if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. Unfortunately, the same logic can’t be applied to mortgage insurance

There are two very distinct types of mortgage insurance that may come into play – one is Mortgage Loan Insurance and the other is Mortgage Life Insurance. Even the names sound similar, but these two types of coverage have completely different purposes and benefits.

It isn’t surprising that consumers sometimes confuse the two. The homebuyer may not really understand what they’ve bought or even make the wrong choice when deciding on coverage. Either way, you need to know the difference, so let’s separate the duck from the goose.

Your mortgage lender will typically mention both types to you when setting up your financial plan. Mortgage Loan Insurance is considered a high-risk loan and this is determined by the amount of your down payment. If you have what is called a high ratio mortgage (less than 20% down payment) and you’re financing through a major Canadian financial institution, you’ll be required by law to take out mortgage loan insurance.

Here’s the bottom line: mortgage insurance protects the lender if you don’t make your payments. It doesn’t protect you, the buyer, but you still have to pay the premium.

The hardest part of buying a home for most people, especially the first one, is saving the down payment. Buyers that don’t have 20% of the purchase price to put down can purchase with as little as 5% down, as long as they have mortgage loan insurance. Then, if the borrower defaults on the mortgage, the lender is paid back by the insurer. This type of insurance allows buyers, who might not otherwise qualify for a loan, to still get the financing for their home purchase. This stimulates the Canadian economy, protects lending institutions and helps to stabilize the country’s economy.

A major provider of this type of insurance in Canada is CMHC (Canada Mortgage and Housing Corporation) the federal government’s housing authority. That’s why you will frequently hear Mortgage Loan Insurance referred to as CMHC insurance. You can learn more on the CMHC web site

The second type of mortgage insurance is Mortgage Life Insurance. It is optional coverage you can choose to buy if you want to ensure that your mortgage will be paid in full if you or a co-owner dies. It is essentially term insurance with coverage that reduces with your mortgage principal. It can be set up as joint coverage for multiple owners, with the benefit falling to the survivor(s) if one owner dies before the mortgage is paid off. There are choices when it comes to purchasing Mortgage Life Insurance, and the rates and coverage will vary based on the insurance company and your own personal history.

You can learn a lot more about mortgages, insurance and the entire home buying process from your Coldwell Banker® real estate professional. Take advantage of our helpful advice by calling 905-357-9700 or email