What is Mortgage Insurance?
Our Perils of Mortgage Life Insurance Comic: No Laughing Matter
click the link to read the whole comic
Sounds great just lying there on paper, doesn't it?
The underlying concept of mortgage insurance is that if you die or are incapacitated mortgage insurance will pay off the rest of your mortgage. But be careful: Mortgage Insurance is the most dangerous financial product out there.
Mortgage insurance is the one financial product which declines in value as you continue to pay.
Why Math is Important
Renting vs. Owning
Let's start with your house. When you take a mortgage out on your house, it's a very bad deal to start with. You are just paying interest on the value of the house and in most cases the interest far exceeds the cost of renting the same property.
Here's an example based on a $500,000 20 year mortgage at 6% on a $600,000 house. We'll assume rent inflation of 4%/year:
Year 2010: Mortgage payment $3560/month. Rent: $2500.
You are leaving over $1000 in your pocket per month in ready money. That's a lot of restaurants and vacations twelve months a year.
But let's take it ten years later:
Year 2020: Mortgage payment $3560/month. Rental $3301.
And you have no equity in the house.
Year 2030: Mortgage payment $0. Rent: $4501.
So in most cases, buying a house is a great deal long term, even with the high mortgage payments. How does mortgage insurance compare with home ownership as an investment?
Mortgage Insurance vs. Life Insurance
On that $500,000—as a 40 year old—you would be paying about $100/month for mortgage insurance (not including disability). For 20-year level term life insurance, you would pay about $60-$65 for that much coverage (non-smoker).
Let's go through the years again:
Year 2010: Mortgage value $500,000. Mortgage insurance: $90/month.
Year 2010: Life Insurance value $500,000. Life insurance: $60/month.
Year 2020: Mortgage value $321,000. Mortgage insurance: $90/month.
Year 2020: Life Insurance value $500,000. Life insurance: $60/month.
Year 2029: Mortgage value $41,391. Mortgage insurance: $90/month.
Year 2029: Life Insurance value $500,000. Life insurance: $60/month.
So with term life insurance you pay two-thirds as much for up to 10x as much coverage (depending on how far down the road you are).
How does that friendly banker look now? May as well paint fangs on him or her. But don't be mad. In most cases, even mid-level loan officers have only a vague idea of how badly they are working to rip you off. What most of them know very well is that they get a nice bonus based on how many of these mortgage insurance contracts they close.
The Mechanics of Mortgage Insurance
So if mortgage insurance were actually sold in a fair way, it would just be a bad deal. But mortgage insurance is sold without qualifying the purchaser. After you claim, the insurance company steps in to compensate you, so that you can compensate the bank. That is, if you are lucky. Often, the bank does not really take good care to sign you up properly and the insurer may back out of the deal claiming that you (the client) have lied on the initial application form.
But wait, you say, the mortgage insurance was sold to me by my bank. Sold – yes, but backed – no. Mortgage insurance is an external financial product. Your bank will wash its hands of the affair immediately. They don't want to know anything about it.
Don't believe us? Think we're just scaremongering to sell you life insurance? Think again. The CBC covered the mortgage insurance scam indepth in their fabulous Marketplace Consumer Reports program. It might be funny, but it's not. Lives are ruined.
Here's a highlight of what awaits you.
Trailer for CBC Marketplace In Denial: Investigating Mortgage Life Insurance
For more on what CBC Marketplace found out about Mortgage Insurance Denial. Careful before you click that link. What you will read on the other side is heartbreaking.
What's hard to believe is that over 50,000 Canadians are living with mortgage insurance underwritten after death. That's 50,000 families living at risk of ending up homeless!
Mortgage insurance is not required and must not be a prerequisite for qualifying for a mortgage.
That's right, if a bank tried to force you to buy mortgage insurance (or discriminated against you if you did not buy it), your bank would be engaging in the illegal conduct of tied selling. Tied selling is explicitly forbidden by Section 459.1 of the Bank Act Canada. (Example of a bank's tied selling prevention policy.)
Mortgage Insurance News
Feeling lost? It's actually easy to search for your unclaimed benefits. Photo by Rana Ossama According to the Canadian Life and Health Insurance Association, 22 per cent of the people who request a search for lost life insurance policies find … Continue reading
There are many differences between Mortgage and individual life insurance. Photo by Christopher Chappelear Mortgage life insurance is insurance that can be purchase from a lending institution. The insurance pays your mortgage in the event that you pass away. Mortgage … Continue reading
Bank-owned mortgage insurance is not a good idea. Photo by Benson Kua Bank-owned mortgage life insurance policies offer several hidden pitfalls. The following seven are just the ones we could think of off the top of our heads: 1. The … Continue reading
This mortgage life insurance plan is better than the banks. Photo by Derek Bakken IA Excellence offers a mortgage insurance solution through its Universal Loan Insurance Program. The contract is independent from creditors and the policyholder owns the coverage. The … Continue reading
You'll put a smile on with the multi-life discount option. Photo by Drew Herron Desjardins Financial Services offers a unique, multi-coverage discount option on their term insurance lineup. Desjardins offers Term 10, Term 20, and Term 30 policies. All coverages are … Continue reading
Bingham Group Services Corp. offers mortgage life and disability. Photo Luciano Meirelles Bingham Group Services Corp. (BGS) offers a no medical guaranteed issue life and disability creditor insurance policy. The plan is underwritten by Foresters Life Insurance Company and is … Continue reading
BSG Corp. offers mortgage life insurance. Bingham Group Services Corp. (BGS) is Canada's leading third-party administrator in the business of creating marketing and administering group creditor insurance products. BGS products are underwritten by Forester's Life Insurance Company, which is a … Continue reading
After your loved one passes, we'll make it easy to collect on their life insurance policy. Photo by Megan Ann. So something has happened to you or your family, but thank goodness, you have insurance, and now it's time to … Continue reading
A mortgage on a home is one of the largest debts incurred by most Canadians, and needs to be taken very seriously. Mortgage holders may want to take measures to protect their family home in the event that payments cannot … Continue reading
Syed Raza talked to us about Mortgage insurance. When most Canadians sign up for a mortgage, one of the last things they're thinking about is their mortgage insurance. However, what might seem like a small decision can result in paying … Continue reading
Mortgage Life Insurance is available from Bank of Montreal. Unity Life of Canada joined the Foresters family in April 2008 and as of Jan 23 2012 changed their name to Foresters Life Insurance Company. Bank of Montreal Mortgage Life Insurance … Continue reading
Disability and life insurance can be paid through your mortgage policy. Photo by Christopher Chappelear Bank of Montreal offers a mortgage, life, and disability insurance policy, which is available through the insured's mortgage lender. The insured has the option of … Continue reading
Mortgage insurance can be a trap Creditor insurance is one of the most profitable products in a bank's line-up. Often sold using high-pressure tactics, many borrowers are backed into a corner and feel like they have to make the purchase … Continue reading
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