Should You Get Mortgage Insurance?
Are you in the market for your first home or a second real estate property?…
Are you in the market for your first home or a second real estate property? For most first-time buyers, navigating the mortgage field can be daunting. There is a lot to learn that can prove overwhelming. You’ve researched and learned the different mortgage options in BC, best rates, and shortlisted a few services, and just when you thought you were ready to go ahead, you come across mortgage insurance. What is mortgage insurance, do you need it, and should you get or skip it? Here is a glance at mortgage insurance to help you make an informed decision.
Mortgage insurance vs. mortgage protection insurance
First things first, mortgage default insurance is not the same as mortgage protection insurance. Mortgage default insurance is designed to protect the lender should you default on your payments. It is not mandatory, but if you can’t raise 20% of the home’s value, your lender will require it as the loan is considered high-ratio. Since the mortgage is considered riskier, the lenders protect their interest by requiring borrowers to get the default insurance. The most popular mortgage default insurance provider is Canada Mortgage and Housing Corporation (CMHC).
Mortgage protection insurance, also known as mortgage life insurance, protects both parties. Should you die or be disabled, meaning that you can’t continue paying the premiums, the insurance covers the remaining loan. This means that your family won’t carry the mortgage burden, financial hardship that could affect the quality of their lives. You can get mortgage protection insurance through brokers or life insurance companies.
Should you get the insurance?
Now that’s clear; so, should you get mortgage default insurance? The answer is not that straightforward. However, if you can’t raise the 20% down payment, it might be a no-brainer. If you can’t raise the required deposit, banks and B-lenders can fail to approve your mortgage request. You could turn to private lenders in Vancouver, but that doesn’t automatically get you the mortgage. If you don’t want to wait, for example, a year, two, or more years, to save up and accumulate enough for the down payment, it is recommendable to get the mortgage insurance. It lets you qualify and get approved, allowing you to buy your dream property with lesser hassles.
How about the costs and payout?
It is worth noting that mortgage insurance translates to more costs. The coverage calculation factors how close you are to raising the 20% down payment, type, and mortgage length. A common misconception that can drive you to get mortgage insurance is expecting a payout. Keep in mind that mortgage insurance doesn’t help you build equity on the property, and you won’t get any payout. If you default, the policy pays the lender. In the case of mortgage protection insurance, the same applies; your family won’t get any payout. With that in mind, if you can afford the 20% down payment, getting mortgage default insurance might be a waste of your hard-earned cash. However, mortgage protection insurance helps you to keep your loved ones out of financial hardships.
How do lenders see you? How many mortgages can you have? While shopping for the best mortgage rates, considering all the options helps you in more ways than you might initially anticipate. For instance, you can get more than one mortgage even if you can’t raise at least the 20% down payment, provided you get mortgage default insurance. Such information can considerably help, especially while considering a second property if you are investing in the lucrative real estate industry.