What happens to your mortgage when you pass away in Canada? Is someone else obligated to pay off the remaining balance of your mortgage or does the lender seize the property? Considering that the average amortization period for buying a home is 25 years, it is crucial to think about the big picture and issues that can arise down the road. Mortgage life insurance is a type of insurance that was created to tackle this specific scenario. In this article, we will take a closer look at what mortgage life insurance entails, how it affects your regular mortgage payments, and other frequently asked questions related to this vital aspect of home mortgages.
What Is Mortgage Life Insurance And How Does It Work
Mortgage life insurance otherwise referred to as mortgage protection insurance is purchased when you are processing your mortgage and covers your mortgage payments post-mortem. This way, your successors (inheritance of the property such as your family) will be able to continue living in the house if the mortgage isn’t paid in full at the point when the borrower passes away.
What Happens When You Don’t Have Life Insurance For A Mortgage?
What if you decide to not buy mortgage protection insurance? The remaining debt on the property is not simply forgotten about. Whoever is set to inherit the property must settle the debt before the property can legally be claimed as an asset. Either they must continue with the regular payments or pay the debt in full. In the case that the inheritors have no intention of keeping the house to themselves, they are able to sell the house and pay the remaining debt in order to clear it. If the debt remains unpaid, serious legal consequences will apply (i.e. the property becomes seized).
Is Mortgage Insurance Mandatory?
Mortgage life insurance is not mandatory in Canada. The only time you must have it is if your mortgage broker requires it, but that’s rare. In most cases, mortgage life insurance is optional. For example, if you are buying a home and have a down payment of less than 20% of the purchase price, you may be required to take out mortgage insurance. In this case, your lender wants to make sure they will get their money back if something happens and they can’t repay their loan.
The best way to get this coverage is through your bank or credit union as they often provide it at no cost or at a very low rate. You can also work with an independent insurance company.
When Do I Need Mortgage Insurance?
A lot of potential homeowners ask themselves, “is mortgage insurance worth it?” after finding out that it isn’t always mandatory. For different people the answer may vary, however, there are certain instances when having a mortgage protection plan in place can bring more advantages than disadvantages. For instance, if you are purchasing a home at an older stage of your life and want the house to be passed down to your children (or grandchildren) in the most hassle-free way, then setting up mortgage life insurance is beneficial. On the other hand, if you are a young buyer and will most likely close the mortgage before passing away, then it is less likely that you will get the most out of your insurance. It primarily comes down to your personal preference.
How Much Does Mortgage Life Insurance Cost?
Mortgage life insurance is a type of insurance that protects your mortgage in the event that you die. The amount of coverage you choose depends on the age of your beneficiaries, their ages, and other factors such as your health and lifestyle. Mortgage life insurance can be purchased as a one-time annual payment or in monthly payments over time.
The cost of mortgage life insurance will depend on the amount of coverage you choose, as well as other factors such as your age and health status at the time when you apply for it. Generally speaking, younger people pay less than older people because they have fewer years left before they retire; however, this isn’t always true since some insurers charge higher premiums to those with pre-existing conditions (e.g., cancer) or who have been hospitalized recently due to an accident or illness.
Life Insurance vs. Mortgage Insurance in Canada
Many people mistakenly assume that life insurance is the same thing as mortgage protection. That’s not true; the two types of coverage are completely different. When you buy life insurance, you’re purchasing a policy that will pay out benefits if you die prematurely. It can be used for many different purposes, including providing for your family’s financial security in the event of your death or covering funeral expenses. That can expand to include your property depending on the insurance plan that you settle with. Mortgage insurance on the other hand only provides protection of the property until the point that the mortgage is closed (i.e. the debt is fully settled). It does not expand or can be applied to any other aspects of your life.
We’ve covered a lot of ground in this article, and it may be a bit overwhelming to take in all at once. If you have any questions about mortgage life insurance, please don’t hesitate to reach out. I would love to help you navigate the process of purchasing your first home!