The home-buying process is one that comes with many different options, each unique to you and your situation. Just like mortgages!
While working through the mortgage process and assessing the various options you have with your unique situation, many tend to consider whether or not mortgage insurance is necessary.
Mortgage insurance can provide both you and your lender with financial protection in the case of a default or unforeseen events. However, it may come with accompanying expenses that might pile up over time.
Many find it is a want, and others lean more toward it being a definite need.
If you are curious as to whether mortgage insurance is a want or need for you and your unique situation, let’s dive into whether it is a necessary investment or an optional add-on.
What is Mortgage Insurance?
Mortgage insurance is essentially a safety precaution for you and your lender, in the case that you are unable to make your mortgage payments.
It shields your lender from the risk of borrower default, by paying out the lender if an unforeseen circumstance occurs and you are unable to make your mortgage payments.
In Canada, The Canada Mortgage and Housing Corporation (CMHC), Genworth Canada, and Canada Guaranty are the primary providers of mortgage insurance in Canada. These corporations provide you with the loan-to-value ratio based on your property’s appraised value, while evaluating the risk of your mortgage.
Why is Mortgage Insurance a Want?
For many, mortgage insurance is simply a want. If a homebuyer feels confident in their financial stability, they may choose to forego mortgage insurance.
Those who can afford a greater deposit of 20% or more are more likely to qualify for a standard mortgage without mortgage insurance.
However, for those that are confident within their financial ability, but want an extra layer of protection, they may consider obtaining a co-signer who can provide their lender with additional security in the event that they are unable to make their mortgage payment.
With a co-signer, this could potentially eliminate the need for mortgage insurance.
While working with your lender, they will assess whether mortgage insurance should be added to your mortgage agreement. You can then make the choice of whether or not you would like to add an extra layer of protection to your mortgage.
However, if they see that there is little to no risk involved with your mortgage, they may not suggest it. Thus, making mortgage insurance more of a want than a need.
Why is Mortgage Insurance a Need?
While mortgage insurance may be considered an option by some, it is frequently a need for many Canadian homebuyers. Since the pandemic and rising inflation rates, many have opted for relying on mortgage insurance as more than just an option.
For those who are unable to make a 20% or greater down payment on their mortgage, mortgage insurance is necessary to ensure their lender will not become subject to default.
For those who are able to make a 20% or greater down payment on their mortgage, they may also view mortgage insurance as a necessity due to the competitive interest rates they could embark on.
In this way, mortgage insurance is often viewed as a need as it acts as a security blanket against all unforeseen events and can provide both you and your lender with peace of mind. If you experience an illness, or job loss, or are feeling the effects of the economy’s interest rates like many Canadians, mortgage insurance may be the only thing on your mind.
Which One Should I Choose?
At the end of the day, the choice to embark on mortgage insurance comes down to you and your finances. By working with Arise Mortgage, we will be able to review the terms of the insurance policy with your long-term financial goals in mind.
Together, we will work to structure a plan that works best for you and your goals.
Get in touch with our team today, and let’s talk mortgage insurance!