5.4.3 Protecting your mortgage
What happens if you lose your job or get injured and can't keep up the payments on your mortgage? Would you be forced to give up your mortgage and sell your home? Insurance helps you manage the risk of losing your home.
There are four main types of mortgage insurance—one protects the lender, and three protect you.
Insurance that protects the lender
- Mortgage default insurance protects the lender if you don't make your mortgage payments. It's required for all mortgages where the down payment is less than 20 percent of the purchase price.
- Often it's added to the mortgage, so you pay for it over the life of the mortgage—and you pay interest on it, too.
- Some lenders ask you to make a separate lump-sum payment for the cost of the insurance.
- The table below shows the cost of standard mortgage default insurance provided by the Canada Mortgage and Housing Corporation. (Your lender can also use independent mortgage default insurers.) The rate is calculated as a percentage of the value of the mortgage loan, and may vary in certain conditions.
| Mortgage value | Standard premium % of loan amount* |
|---|---|
Up to and including 65% of property value |
0.60% |
Up to and including 75% of property value |
1.70% |
Up to and including 80% of property value |
2.40% |
Up to and including 85% of property value |
2.80% |
Up to and including 90% of property value |
3.10% |
Up to and including 95% of property value |
4.00% |
Non-traditional sources of down payment** |
4.50% |
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount. ** Down payment requirements:
|
|
Insurance that protects the homeowner
- Mortgage life insurance covers your mortgage payments if you die. If that happens, your family will not have to worry about losing their home as well. Mortgage life insurance expires when the mortgage is paid off.
- While your premium payments stay the same, the insurance benefit declines to match the amount remaining on your mortgage.
- Mortgage life insurance may be offered by the financial institution that provides your mortgage. (It is an optional service, although the institution may offer a preferred rate if you buy the insurance.)
- When banks offer mortgage life insurance, they must follow a code of conduct, which requires that they explain, among other things, the details of the policy, the charges and the conditions to cancel.
- Mortgage disability insurance covers your mortgage payments in case you have a serious illness or accident. You may already have disability insurance provided by your employer, so check to see what added coverage you may need to ensure your mortgage payment is covered.
- Term life insurance covers your life up to an amount that you choose, but it doesn't normally cover illness or disability. If you die, your family receives the insurance payment, and can use it to cover the mortgage payments. Coverage continues as long as the term you choose.
- The cost of term insurance depends on many factors, such as age, state of health, personal situation and the length of time the insurance is needed. The cost could be less than the cost of mortgage life insurance.
- Because term life is not tied to a mortgage, it can be used for any other purposes when it's paid out.
For more information about insurance in general, see the module on Insurance.
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