Throughout your mortgage process, you’re going to encounter up to four different types of insurance: default, title, home, and life/disability insurance. Let’s take a look at each of these insurance types, when they’re required, and what they provide you!
Default Insurance
If you’re putting less than 20% down on a home in Canada, you’re required by law to get default insurance. This insurance is designed to protect the lender if you default on (i.e. can’t pay) your mortgage. In this case, the borrower pays the premium and the lender gets the protection.
In Canada, there are three default insurers: Canadian Mortgage and Housing Corporation (CMHC), Sagen, and Canada Guaranty. The borrower doesn’t pick which company is used, the bank or lender does. Not every lender works with every insurer either. All these insurers cost the same and are really only different in the back-end policies and programs.
Title Insurance
Title insurance is a one-time fee that is paid out to your lawyer as part of your closing costs. It lasts with you as long as you own the home. No matter the deal, title insurance is almost always necessary. This insurance is also required by the lender and paid for by the borrower. You don’t need to worry about shopping around for this though as your lawyer takes care of it.
This insurance is necessary because it protects both the lender and the borrower. There’s a wide range of financing aspects that are protected but, to simplify, everything from title fraud (someone fraudulently stealing your title and selling your home) to lot line disputes (two neighbours arguing over where their properties begin/end) are covered and included here.
Home Insurance
Home insurance is a recurring fee that is required by law to cover your home in the case of an accident (e.g. fire, water damage, etc.). It’s also necessary to protect the homes of those around you, which is especially relevant in condos and townhomes. This insurance is paid for directly by the homeowner to the insurer but here, you can always shop around for the best deal!
Pro Tip: If you don’t pay or renew your home insurance and it lapses, then you’re technically in default on your mortgage.
Life/Disability Insurance
Life/disability insurance is the only insurance that we’ve discussed which is optional. This is not an insurance product you need to have BUT it is one you should have. Basically, it means that if anything happens to you, your mortgage will still be paid. This ensures that you have the means to keep paying your mortgage for a certain amount of time. Legally, the option has to be provided to you but you will not be denied your mortgage if you decline it.
Please note that the above is reflective of generalized insurance information. Insurance aspects are subject to change based on an individual’s particular situation. Contact the Kyle Miller Mortgage Agent team to learn more about the different insurance options you’ll need require!
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