Understanding Mortgage Insurance
Published on March 14, 2024 | Approx 3-4 Minute Read
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Many people are feeling the effects of inflation. Prices are up, sizes have shrunk, and cash flows are being squeezed.
We are thinking more and more about the value we are getting; with all kinds of purchases.
Let's apply this thinking to Mortgage Insurance. If we could save - $200/month, $300/month, or more each month - how much more would we be ahead?
If you have Mortgage Insurance, you likely have one of these two plans:
a) You got your Mortgage Insurance from your Bank when you got your mortgage.
As long as you don't move, or change lenders, your insurance is good for the full term of your mortgage. This may be for a full 25 or 30 years, or less if you pay it off earlier.
If you move or change lenders, your Mortgage Insurance is done and you have to start over.
Whether or not you pay down your principle early, your Mortgage Insurance payments remain the same.
If you make monthly mortgage payments, your Mortgage Insurance premium is added to your monthly payment. If you pay your mortgage every 2 weeks, your Mortgage Insurance premium is added bi-weekly. It should be fairly. easy to check the extra premium you are paying for Mortgage Insurance.
b) You got your Mortgage Insurance from an Insurance Agent, or Broker.
Although your mortgage amortization might be 25 or 30 years, perhaps you choose a different term for your Mortgage Insurance. You might have selected a 10 year or 20 year plan, with a renewal option built in. You may have made this selection because of cost savings, or perhaps an expectation of the mortgage being done away with sooner.
You might expect to only be in the property for 10 years. Whether you downsize or upsize, your mortgage insurance can go with you to your new property. Or you can cancel anytime.
Perhaps you will be in the property longer, but an inheritance in the next few years should be coming in to pay off the mortgage. Why pay for long term Mortgage Insurance, if the Mortgage isn't long term.
After qualifying for this coverage, you are pleased that you now have a plan you control.
Here is a case we worked on recently that illustrates each approach:
Our Clients are age 56 and 57. They just purchased a new property with a bigger lot, and a little more green around them. They are looking forward to planting a garden, having their travel trailer onsite, and generally not being so cramped.
Despite having nice equity in the property, they still ended up taking on a $600,000 mortgage, amortized over 20 years. Although they both work and enjoy their jobs, their goal is to pay off this mortgage well before 20 years. Their aim is between 10-15 years. In their situation, they feel Mortgage Insurance is important.
RBC, their lender quoted them $714/month for Mortgage Insurance. This rate wouldn't change, and their coverage would be good for 20 years, or less if the mortgage is paid sooner.
We gave them 3 rates; one for a 10 year plan, a 15 year plan, and a 20 year plan:
10 years: $248/month
15 years: $360/month
20 years: $500/month
All of our rates are guaranteed for the term. If they pay down their mortgage, and ask that their insurance be reduced, their insurance payment will reduce respectively.
This couple selected the 15 year plan - about half the cost of RBC's plan.
🙂
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We are happy to provide a complimentary Mortgage Insurance Analysis. We welcome referrals and introductions (and offer a referral fee, or charitable donation in your name).