What is mortgage insurance in Canada?
Mortgage insurance acts as a safety net, helping you pay your monthly mortgage premiums when you can't afford them due to some unseen circumstances such as death or disability (if disability protection added).
There are two main types of mortgage protection insurance in Canada:
1. CMHC mortgage insurance
• You must get lender mortgage insurance if your down payment is less than 20%.
• The rates may vary between 2.8 to 4% depending upon your loan amount it varies
2. Mortgage protection insurance
• Mortgage insurance aims to protect you and your property when you are unable to pay your monthly mortgage repayments
• It is particularly helpful when you:
• Die (mortgage life insurance)
• Get disabled (mortgage payment protection)
• Get seriously ill (critical illness insurance can complement this)
• Lose your job (with some family mortgage protection plans)
• It provides home loan protection so your family can stay in your home when bad things happen
• This is optional but one of the highly recommended protection plans when buying a home
What are the types of mortgage protection policies?
Mortgage insurance from bank or lender
This insurance policy protects the bank, not the borrower. Every borrower will get this optional coverage by the bank while purchasing a home. When you die, it pays off the difference amount if the property is sold for less than outstanding loan balance. In case if you switch banks, you need to get a new lender mortgage insurance at a higher cost.
Term life insurance for mortgage protection
You can consider this protection a type of life insurance. It is entirely owned by you, not the bank. You can buy it for a set time of 10, 20, to 30 years. If you die, the insurance policy pays enough to cover the mortgage. Your family can decide how to use the money.
For dedicated mortgage protection, term life insurance offers more flexibility and better value than bank-provided mortgage insurance.
Decreasing term life insurance for mortgage
It is an affordable option for mortgage protection because the payout decreases as time goes on. The coverage will be matched with the outstanding mortgage balance.
Note that the payout decreases over time but the payments stay the same and finally the insurance will also be over as your mortgage gets paid off.
Some points to consider while choosing Lender Mortgage Insurance or Mortgage Insurance:
Lender Mortgage Insurance vs Term Life Insurance
| Lender Mortgage Insurance | Term life insurance |
|---|---|
| The bank | Your family |
| You need to get a new insurance | No need to get a new insurance as the old one stays with you |
| Reduces over time as you pay off mortgage | The amount remains same |
| Often higher | Comparatively low |
| Basic questions | Includes a more detailed health check |
| Only Mortgage | You can include multiple individuals |
| Premiums can change | The premium remains unchanged for the contracted period |
At PolicyScanner we recommend term life insurance for mortgage insurance because it's cheap compared to lender provided mortgage insurance and the life insurance payout is provided to your family members not to the bank.
How does mortgage insurance work in Canada?
How long does mortgage insurance coverage last?
The mortgage insurance in Canada lasts when you completely pay off your mortgage. However, in case of bank mortgage insurance/ lender mortgage insurance, your coverage ends when you switch banks and you have to take a new mortgage insurance coverage, if you want to protect your mortgage loan. The alternative option is term life insurance.
What happens if you die?
If you bought bank mortgage insurance, they will pay off the remaining mortgage after your death. In case of term life insurance for mortgage, the payout is transferred to your family. They will decide how to use that money. They can pay off the mortgage balance and the balance amount they can use for their wellbeing.
Does it cover illness or job loss?
Basic mortgage life insurance only covers death. You can bundle other coverages such as critical illness, disability protection, job loss protection etc... Certain providers by default include additional coverage for disability, critical illness, and job loss at an extra cost.
Here's a real life example to learn how it works:
Sarah and Michael each bought a house with a $400,000 mortgage. Sarah chose private insurance and Michael chose bank insurance during their purchase. After a couple of years, they got an offer from another bank with a better mortgage rate. Sarah instantly switched banks, but her mortgage coverage policy kept working as it was private insurance. On the other hand, Michael did not benefit from switching banks as he bought bank insurance.
Do you need mortgage insurance in Canada?
It's not compulsory! But having mortgage insurance is highly recommended. It protects your property and family when you are unable to pay monthly mortgage premiums or meet the contractual obligations of the mortgage.
Mortgage insurance for first-time homebuyers
Many of us use most of our savings for a down payment while buying a dream home. The mortgage insurance ensures peace of mind if something goes wrong with us. It also makes sure that our family won't lose the home during such a critical time.
First-time homebuyers should also consider life insurance to protect their overall financial obligations beyond just the mortgage.
Families with dependents
If your spouse and children are financially dependent on you, the level of stress can't be imagined when something happens to you. Mortgage protection plan makes sure that they will stay in their home even if you are no more or unable to go to work due to some unforeseen circumstances.
Families should consider a comprehensive protection strategy including term life insurance and critical illness insurance alongside mortgage protection.
Self-employed individuals
Self-employed individuals don't get to enjoy the benefits of group life insurance. Such group protection plans are offered to employees. That's why buying a mortgage insurance plan makes sense. It provides you similar protection that you could get through a job.
Self-employed individuals may also benefit from whole life insurance for its cash value component and tax benefits.
People with health problems
Getting regular life insurance is either hard or too expensive when you have health issues. But don't worry, because there are a few mortgage insurance plans with which you don't have to go through a long list of medical questionnaires.
Knowing your insurance needs is the key to success. A few policies can protect your mortgage and at the same time cover other needs of your family. Please make sure to thoroughly compare each plan while buying a mortgage insurance.
Who should buy Mortgage Insurance?
✓ Recent homebuyers who spent most savings on down payment
✓ Parents with young and financially dependent children
✓ Single-income families where one person pays the mortgage
✓ Those with health issues looking for a simple coverage with fewer questions
Mortgage insurance vs term life insurance — which is better?
There are different insurance plans to protect your home when something goes wrong with you. Two of them are mortgage insurance and term life insurance.
Here is a quick comparison table to learn the difference between them.
Mortgage Life Insurance vs Term Life Insurance
| Mortgage Life Insurance | Term Life Insurance |
|---|---|
| The bank | You |
| Usually higher | Usually lower |
| Goes down over time | Stays the same |
| The bank | Your family |
| You lose it | You keep it |
| Basic | More detailed |
| Only for mortgage | Any way your family needs |
Why term life insurance for mortgage protection is often better
Term life insurance is always better than lender mortgage insurance even though you pay the same amount each month.
This is because, In case of term life insurance, coverage stays the same over time. You pay for what you get. Your family will decide what to do with the money. They can pay off the mortgage or use it for other financial needs. Another benefit is when you switch banks. Term life insurance stays with you. It means you won't lose coverage.
Example: For a $500,000 mortgage, with mortgage insurance, you need to pay $87 per month and the coverage decreases over time. Whereas with term life insurance, you need to pay $63 per month and it comes with a fixed coverage.
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How much does mortgage insurance cost in Canada?
The mortgage insurance cost is based on several key factors as discussed below.
Age & health
Mortgage insurance rates go up as you get older. If you are young and healthy, your mortgage insurance premiums will be low in Canada. For example, a 30-year non-smoker might pay half of mortgage premiums compared to a 45-year old.
Mortgage size
Your insurance premiums mainly depend upon the size of your mortgage. The bigger your mortgage, the more you pay. For example, if you purchase a $500,000 home with 5% of down payment and 3.10% premium, the monthly premium will be $14,725.
Type of insurance
Term life insurance is an affordable option. It is usually cheap compared to lender-provided insurance. WIth bank or lender mortgage insurance, your monthly premiums and coverage changes over time, whereas it remains same with term life insurance; especially beneficial for long term financial planning.
Health check
Mortgage insurance that does not require any health check may cost more. They are popular as No Medical Mortgage Insurance. If you are healthy, it is recommended to buy regular term insurance which is far more affordable than No Medical Mortgage Insurance.
Non-smokers and medically fit individuals could qualify for special rates from insurance companies. If you don't smoke at all or have quit smoking for at least 12 months, discuss the same with your PolicyScanner advisor for preferred/elite rates.
Sample monthly mortgage insurance rates
For a $400,000 mortgage:
• 30-year-old: $25-60/month
• 40-year-old: $45-90/month
• 50-year-old: $85-175/month
Disclaimer: Rates based on male, non-smoking, 20-year term
What are the best mortgage insurance providers in Canada?
If you are looking to save money and get the best coverage, make sure to choose the right insurance company.
Here we have shortlisted top mortgage insurance providers in Canada:
Best Mortgage Insurance Providers in Canada
| Company | Type | Financial Rating | Cost Level | Key Benefits |
|---|---|---|---|---|
| Sun Life | Private | A+ | $ | Portable, flexible options |
| Manulife | Both | A+ | $-$$ | Can include job loss coverage |
| RBC Insurance | Both | A | $-$$ | Good for RBC customers |
| Canada Life | Private | A+ | $ | Flexible payment options |
| Empire Life | Private | $ |
Compare mortgage insurance policies with PolicyScanner
Comparing insurance policies from different companies is a daunting task. But don't worry, PolicyScanner is here to help.
It lets you quickly compare different options, clauses, coverage, etc. side-by-side. Here's how we helped thousands of buyers speed up their home insurance policy research:
• Clear pricing information on mortgage insurance premiums
• Unbiased analysis of mortgage protection policy benefits
• Help finding affordable mortgage insurance
• Expert guidance on mortgage insurance vs. mortgage default insurance
We understand the importance of choosing the best policy as everyone has different needs. So, we don't push any particular company on our platform. Our team is focused on helping you find the best mortgage insurance provider in Canada as per your unique requirements.
You can also compare other types of coverage like life insurance, term life insurance, whole life insurance, and critical illness insurance to create a comprehensive protection plan.
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How to apply for mortgage protection insurance in Canada?
Applying for a mortgage protection plan is easy. Here are the quick steps you need to take:
1. Choose a Provider: Select a mortgage insurance plan based on your requirements.
2. Fill Out the Form: Complete the application with your personal details, mortgage information, and health questions.
3. Select Your Coverage: Here, you can choose whether you just want mortgage life insurance or added mortgage payment protection for disability or illness.
4. Review Process: The insurer evaluates your application based on the information provided by you in the second step. They mainly consider your age, health, and mortgage size.
5. Get Approved: Once approved, you'll receive your certificate of insurance outlining all the details.
Consider whether you need additional protection beyond mortgage insurance, such as critical illness insurance for comprehensive health coverage.
Health check requirements
Age and health are among the main factors that decide the mortgage rates. You will go through a comprehensive health check with a few insurance companies. But the efforts are worth it because you will get lower mortgage rates if you are young and healthy.
If you smoke or are having any health issues, you need to choose No Medical Mortgage Insurance that costs 20-50% more than regular insurance policies. There are a few basic policies as well that lack comprehensive protection, but are easy to get when you have health issues.
Approval time
How long it takes:
• Basic bank policies: Often 1-3 days
• Fully underwritten insurance policies: Can take 2- weeks
• No-medical policies: Sometimes immediate approval but costs more
Ask for pre-qualification checks that do not affect your credit score. It is particularly helpful when you have health issues or are planning to buy no medical mortgage insurance.
Frequently Asked Questions
The first one aims to protect lenders when down payment is less than 20%. Whereas the second one is optional and offers coverage that pays off your mortgage if you die or are unable to go to work. Many people purchase mortgage protection insurance to make sure their family is safe and stress-free during tough times.
Insurance companies allow you to cancel lender mortgage policy anytime. Other policies can be canceled within a 30-day period for a full refund. But it depends upon the insurance company. With a few companies, you won't get money back. So, please make sure to invest maximum time comparing different mortgage insurance policies, if there are any doubts please consult a PolicyScanner advisor.
For comprehensive disability and illness protection, consider adding critical illness insurance to your coverage portfolio.
On the other hand, mortgage life insurance is focused on protecting your property and family incase of your death or disability due to injury and illness.
• Sun Life
• Empire Life
• Equitable Life
• Manulife
• RBC Insurance
• Canada Life
Use PolicyScanner, a leading platform to compare mortgage insurance policies side-by-side. You can easily find the best mortgage insurance provider in Canada.
You can also compare other insurance products like life insurance, whole life insurance, and critical illness insurance to ensure comprehensive family protection.