Buyers need to understand Mortgage Insurance

[Joe Crawford]

Real Estate Matters - November 26, 2007.



When you buy a home, there are two very distinct types of mortgage
insurance that may come into play - one is Mortgage Loan Insurance and
the other is Mortgage Life Insurance. Even the names sound similar,
but these two types of coverage have completely different purposes and
benefits. Unfortunately, consumers sometimes confuse the two. That
confusion can result in the homebuyer not really understanding what
they've bought or making the wrong choice when deciding on coverage.
Either way, you need to know the difference.

Both types of mortgage insurance will typically be raised by your
mortgage lender at the time of financing. Mortgage Loan Insurance is
for what is considered a high risk loan and this is determined by the
amount of your down payment. If you have what is called a high ratio
mortgage (less than 20% down payment) and you're financing through a
major Canadian financial institution, you'll be required by law to
take out mortgage loan insurance and you'll be required to pay the
insurance premium. Mortgage insurance protects the lender if you
don't make your payments. It doesn't protect you, the buyer, but you
must pay the premium.

For most people the hardest part of buying a home, especially the
first one, is saving the down payment. Many people won't have 20% of
the purchase price to put down. With mortgage loan insurance, buyers
can put as little as 5% down. Then, if the borrower defaults (fails to
pay) on the mortgage, the lender is paid back by the insurer. With
Mortgage Loan Insurance, many buyers who might not otherwise qualify
for a loan can still get the financing for their home purchase. This
stimulates the Canadian economy, while at the same time protecting our
lending institutions and the stability of our overall federal
economy.

CMHC (Canada Mortgage and Housing Corporation), the federal
government's housing authority, is a major provider of this type of
insurance in Canada. For that reason, Mortgage Loan Insurance is
frequently referred to as CMHC insurance. For more information visit
the CMHC web site www.cmhc-schl.gc.ca.

The second type of mortgage insurance -- Mortgage Life Insurance - is
optional coverage you can elect to buy if you want to ensure that your
mortgage will be paid in full if you or a co-owner dies. It is
essentially term insurance with coverage that reduces with your
mortgage principal. It can be set up as joint coverage for multiple
owners, with the benefit falling to the survivor(s) if one owner dies
before the mortgage is paid off. Mortgage Life Insurance is offered
by a number of carriers and the rates and coverage will vary according
to the insurance company offering the coverage and your own personal
information.

Your Coldwell Banker (R) real estate professional can tell you more
about mortgages, insurance and the entire home buying process. Why
not call me today, and take advantage of their helpful advice? You'll
be glad you did!


www.joe-crawford.ca
Joe Crawford