What is Mortgage Loan Insurance?
Mortgage loan insurance is an insurance policy that protects your mortgage lender in case you default on your mortgage.
Mortgage loan insurance is usually required where your downpayment is less than 20% of your purchase price. Mortgage loan insurance is offered by Canada Mortgage and Housing Corporation (“CMHC”) and Genworth Financial Canada (“GE”). There are different types of insurance available and you must be approved for an insured mortgage (your lender arranges it).
If you default on your mortgage, the mortgage loan insurance will kick in and pay the amount that you owe on your mortgage to your mortgage lender.
How much is it and who pays for it?
You pay the mortgage lender’s insurance premium and this amount is usually added to the principal amount of your mortgage. The insurance premium is based on a percentage of your home’s purchase price.
Mortgage Loan Insurance is not Mortgage Life or Critical Illness Insurance which is insurance that may pay out your mortgage when you die.
2 Critical Things to know if your Mortgage is Insured
If you default on your mortgage, the insurance will pay the bank what you owe on the mortgage. The insurance then tries to collect that money from you. First, they start by foreclosing on your house. If the sale of your house doesn’t cover the amount owing, then the insurance company will come after you personally to collect the rest. They can do things like take money from your bank account or take your wages.
You should never let anyone assume your mortgage. You will always be personally responsible for your mortgage. If someone assumes the mortgage from you and they default on the mortgage later on, you will still be personally responsible.