Mortgage Insurance Tips



When you submit your application for your mortgage, the financial institution will usually offer you mortgage insurance. There are some important considerations you should be aware of.

The amount of mortgage insurance is the same amount as the amount of your mortgage.

As the amount of your mortgage decreases, so does the insurance, although the premium cost remains the same.

If you were to die, you do not receive the proceeds. The insurance money is paid to the financial institution to pay off the mortgage.

The premium is not guaranteed, and can be increased.


TRAP

You cannot transfer your insurance if you want to transfer your mortgage to another bank for a better mortgage rate.

John’s mortgage came up for renewal. He shopped around and found a much better deal at another bank. He transferred his mortgage to another bank, but his insurance was not transferable. And when he went to apply for insurance at the new bank, discovered he was uninsurable.

Sam transferred his mortgage to another bank, and was now 7 years older than when he first took out the insurance, so although he qualified the cost is much higher.

If you were to default on your mortgage payments it is likely the insurance will expire.

The insurance company can cancel the insurance.

Sylvia renewed her mortgage after 5 years. She had to answer the insurance questionnaire again, and discovered she was no longer insurable, as she had had cancer. Three years later she passed away. There was no money to pay off the mortgage. Her children moved in with Sylvia's sister, which made financial hardships for everyone. If the mortgage had been paid off, the house proceeds would have gone a long way to help care and feed her kids.

If you were to redo the mortgage, you have to redo the insurance. You run the risk that you are no longer insurable, and your premiums are now based on your current age, so will be higher.

If you do die prematurely, the insurance money can only go to the bank to pay off your mortgage. Your family can not have any of it for their other needs.

TRAP

The Mortgage insurance questionnaire consists of short questions about your medical history. If you answered any of those questions incorrectly (which could easily happen not knowingly) you may have put your insurance in jeopardy. If you later die, the insurance may NOT pay out.

TIP

My advice is to buy term insurance from an insurance agent, rather than mortgage insurance from your financial institution.

  • You are not tied into your mortgage company. Down the road at renewal time of your mortgage, you will be able to shop around. If you find a better mortgage rate, you can transfer to a new institution without having to worry about your insurance. It will already be in place with the term policy.
  • The insurance company cannot cancel term insurance on you.
  • With proper selection of term insurance, your costs are fixed over the life of the mortgage.
  • If you were to die, the term insurance proceeds can be used for whatever your family desires. With mortgage insurance, the money must go to the bank and pays off the mortgage.





Possibly even more important is Critical Illness Insurance for your mortgage.

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