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Mortgage insurance or mortgage insurance??

on Tue, 09/06/2011 - 23:37

 

Is amazing how many people have no idea what "mortgage insurance" means...
 
I have met many people, think mortgage insurance is the same as mortgage loan insurance. 
 
Ok, let's make it clear: mortgage loan insurance is usually provided by CMHC and GE, mostly CMHC. From CMHC's web site, it defines mortgage loan insurance as follows: Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders (not you... we called it creditor insurance) against mortgage default (even though I have yet to understand EXACTLY how it works as there are so many people got power sale on their houses without the mortgage loan insurance kicking in...)
 
You pay an extra premium based on a percentage of your mortgage. Even though the premium can be paid in a single lump sum, most of the time it would be added to your mortgage and included in your monthly payments (in that case the bank can charge you interest on the premium as well, you see?)
 
Now, let's look at what is mortgage life insurance. Mortgage insurance is, from the definition of Wikipedia, is a form of insurance specifically designed to protect a repayment mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy would pay out a capital sum that will be just sufficient to repay the outstanding mortgage (it can also in a form of critical illness insurance or even disability insurance). Most of the time, you will be given an application on this while you are signing your mortgage papers with the lenders. 
 
A lot of times, people don't even know they can say "no" to it because they are fear that the lender will not give them the mortgage if they refuse the insurance. A lot of times, people don't know they have a choice, because the lender normally would NOT tell you that you have other options.
 
What you need to know is that, you can say "no" and you have a choice. CBC Marketplace had done a feature on mortgage insurance provided by lenders, which points out that the policies might not be pay out when needed. The major issue here, other than "the bank staffers selling mortgage insurance are unlicenced and rarely trained to explain the details and legalities of those insurance products", the ease of getting the coverage is also a big problem. 
 
Proper insurance policies offer by insurance companies would have gotten underwriters look into your application (which is 10 times more than the 3 questions asked by the banks), and decide how they want to insure you. Having JUST answering the 3 questions doesn't give the insurer a good understanding of your health, and that would lead to denial on pay out when needed.
 
This comparison table from Sun Life gives you a better understanding why we oppose getting coverage from lenders and banks, 
 
I hope this will give you a better idea and clear the confusion on "mortgage insurance", please do not hesitate to contact me if you have any questions.

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