As 2024 unfolds, Canadian homeowners find themselves at a crucial point in their mortgage – renewal time! In this article, I will explore the current dynamics of the Canadian mortgage market, what to expect when renewing your mortgage, and considerations to ensure a seamless process. If there’s a topic that homeowners are discussing in 2024…Read Article
The Difference Between Homeowners and Mortgage Insurance
There is a big difference between homeowners insurance and mortgage insurance. Sometimes people don’t realize that these types of insurance are two different kinds, so I wanted to write an article to explain the differences.
The major difference.
To start, let me explain the main difference between homeowners insurance and mortgage insurance. Homeowner insurance protects the home and the contents inside the home.
Mortgage insurance protects the lender and the loan.
What is homeowners insurance?
Homeowner insurance or home insurance protects your property in the event of loss, theft, fire, flood, etc. It also provides coverage for your civil liability.
Homeowner insurance is something that every home is required to have and a mortgage loan and closing date can not move ahead until homeowner insurance is prepared and set up. Homeowners insurance is also not related to the amount of the down payment or mortgage loan, it’s tied to the value of your home and property.
Your home insurance needs to start on the day that you get the keys to your new home and is a separate payment than your mortgage insurance. There are many different home insurance companies out there, so be sure to shop around to find the best coverage for you. Most homes will pay a monthly bill for their home insurance, but can also be done yearly.
What is mortgage insurance?
As mentioned above, mortgage loan insurance covers your loan balance/payments and is required by the lender.
If you buy a home with a down payment of less than 20%, lenders will require you to take out insurance with a mortgage loan insurer (Sagen formerly known as Genworth, Canada Mortgage and Housing Corporation or Canada Guaranty).
For example, if you go through CMHC, their premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums.
If you buy a home with more than 20% down, mortgage insurance may not be required, but if you forgo the insurance your interest rate could be higher. If your home purchase is more than $1 million, mortgage insurance is not available.
Your mortgage insurance is added to your mortgage amount and is paid off in your regular payments.
Don’t confuse this with optional mortgage insurance.
Now to dive a little bit deeper, I want to mention optional mortgage insurance. You may come across information on this online and I want to ensure that you know this is also different from mortgage insurance.
Optional mortgage insurance is an additional product that can sometimes be offered when you get a new mortgage loan or renew. This mortgage insurance can help make mortgage payments, or help pay off the remainder owing on your mortgage, if you:
- lose your job
- become injured or disabled
- become critically ill
It’s important to note that you do not have to purchase additional, optional mortgage insurance to be approved for a mortgage. This optional insurance is different from the mortgage insurance I mentioned above that is needed for down payments of less than 20%.
If this additional insurance is something that you are interested in, I can provide you with more information on this.
Difference insurances, different reasons.
Now that you understand the difference between homeowners insurance and mortgage insurance, it’s time to get approved today! You can call me at 250-826-3111, contact me through my website or apply directly here. I will speak to you soon!