Mortgage Balances on the Rise: How Best to Protect Yourself
In a recent report from TransUnion Canada, the average amount Canadians owe in mortgage debt is up by nearly five per cent, even though real estate sales have declined.
The average balance for new-mortgages during the first quarter of 2017 was approximately $280,093, up 8% from the same period a year ago. The increase in mortgage amounts is mainly due to rising house prices.
According to TransUnion research director Matt Fabian, despite increasing balances consumers have been able to keep up with mortgage obligations. Delinquency rates have dropped by 0.6%.
House prices vary greatly from province to province which means that mortgage amounts vary, as well. The cost of the home and the amount of the down payment affect how much of a mortgage you need. Most people can only afford the minimum down payment amount allowed in their province, however the more you can put down, the better off you will be in the long run. Average mortgage amounts by province currently look like this:
Alberta – $243,561
British Columbia – $210,500
Manitoba – $139,850
New Brunswick – $102,250
Newfoundland and Labrador – $156,500
Nova Scotia – $114,545
Ontario – $187,200
Prince Edward Island – $102,400
Quebec – $226,972
Saskatchewan – $122,618
This is a lot of debt to leave behind should tragedy suddenly strike, and that is why mortgage lenders insist the mortgage holder has enough life insurance to cover the balance. Your lender (bank, credit union, etc.) will offer you mortgage life insurance and there instances when mortgage insurance makes sense, but in most cases, you are better off buying private life insurance coverage.
Advantages of Private Life Insurance Coverage
Private life insurance coverage offers many advantages over mortgage insurance.
The premium on mortgage insurance is the same for everyone. You don’t get any discounts for not smoking, living a healthy lifestyle, buying when you are young or any other discounts normally available with personal life insurance policies. This means you aren’t getting the best possible deal and may be paying higher premiums than you should.
Benefit Value Declines
Mortgage life insurance covers the amount of your mortgage. This means that as you pay down your balance, the face value of your policy declines. The premiums you pay stay the same for the life of your mortgage, but the amount of the benefit declines as the amount owing declines. Traditional term life insurance keeps its value and can usually be purchased for much lower premiums.
You Choose Your Beneficiary
Private life insurance allows you to name your beneficiary. With mortgage life insurance, the mortgage holder is the beneficiary. The mortgage is paid off, but your family is left with nothing else – no money for final expenses, to pay off your bills, to help with living costs or anything else your family may need after you are gone.
Underwriting is the process of determining your eligibility for life insurance coverage. The cost of your premium is based on your health, age, lifestyle and various other considerations. As long as your premiums are kept up-to-date, your coverage is guaranteed and the policy will pay out. With mortgage insurance, the lender may use “post-claim underwriting,” which means your eligibility is determined only after a claim is filed. At this time they may decide you never did qualify and deny your claim. This sounds like a horrible practice, but it can and has happened.
Life insurance from your mortgage lender is tied to that lender. If you sell your home and pay off your mortgage, your insurance coverage ends. If you move your mortgage to another lender, your coverage ends, but you will be required to get a new policy. A simple term-life policy stays with you for as long as you pay the premiums, no matter who is holding your mortgage or how many houses you buy and sell.
Analyzing Your Needs
If you have a personal life insurance policy, you likely have sufficient coverage to pay off your mortgage. When analyzing how much life insurance coverage you need, covering your mortgage debt should be at the top of the list. Mortgage lenders will insist that you have some type of insurance to ensure your mortgage will be paid in case of your untimely death. If you don’t, then your lender will require you to take their insurance.
Cover More Than Just Your Mortgage
With your own private term life insurance policy, you can cover most of your insurance needs. Your beneficiary can pay off your mortgage, pay off credit card debts, pay off personal loans, pay for your child’s education, replace your income, have a relaxing vacation in the tropics or anything else that needs to be paid. A life insurance policy with the bank only covers your mortgage, which means you will need additional policies to cover everything else your beneficiary will need. This means double premiums for the same amount of coverage.
These are all important reasons why you should get sufficient personal life insurance coverage and avoid mortgage insurance from your bank or financial institution. However, there is one more thing to remember – an untimely death is not the only reason to get insurance. To protect yourself and your family against financial hardship, you should also consider critical illness and disability insurance.
The chances of developing an illness or becoming disabled are much greater than an untimely death. You most likely have some type of illness or disability insurance coverage from your employer, but it may not be enough. If you are self-employed, personal life insurance with illness and disability protection becomes even more important. Always make sure you have sufficient coverage for your needs.
For more information, give us a call at 1-866-899-4849 or to compare for yourself with our Term Life Instant Quote Page.