When you are looking for a home in Brampton, Toronto or the GTA, it’s easy to get caught up in the excitement and frenzy of homebuying. During all that excitement or before you start, be sure to take some time to get acquainted with a few key terms. Here are the types of insurance you’ll encounter.
High-Ratio Mortgage Insurance
If your down payment is between 5% and 20%, you are required to have “high-ratio mortgage insurance.” This insurance is there to protect the lender, and the premium is typically added to your mortgage amount. Here is an example:
Purchase price is $700,000. You’ll need 5% down payment for the first $500,000, which is $25,000, and then you’ll need 10% down for the next $200,000, which is $20,000, for a total minimum down payment of $45,000 and a total mortgage amount of $655,000. The mortgage insurance premium is 4% or $26,200, which is then added to your mortgage for a total of $681,200. This is the amount that your payments on based on. The insurance premium declines at 10% and at 15% down. If you’ve saved up more than 20% of the purchase price, then you don’t need this insurance unless it’s required by the lender.
Title Insurance
Having “title” means you have legal ownership of property. Title Insurance protects owners and their lenders against losses related to the property’s title or ownership, such as unknown title defects, unpaid liens against the property’s title, encroachment issues like a neighbour’s deck that is partly on your property, zoning noncompliance, title fraud and forgery, survey errors, and other title-related issues that can affect your ability to sell, mortgage or lease your property in the future. Your one premium payment is collected upon purchase and based on the value of the property, although you can buy title insurance anytime after you buy your home.
Home & Property Insurance
This critical insurance protects against risks to your property and your contents in the event of fire, theft, and some weather damage, and it includes liability insurance if someone is hurt on the insured property. Lenders require proof of home insurance, so be sure to have your policy in place after your offer is accepted and before your closing date. Often you can bundle your auto insurance with your home insurance for considerable savings.
Mortgage Life Insurance
In the event of death, this insurance will pay the insured balance of the mortgage, discharge fees and prepayment penalties to the lender, and leaves the property with little or no mortgage for the surviving family. There are many reasons to strongly consider this coverage because anything can happen at any age and at any time, and it’s important to protect your biggest financial obligation. Premiums are calculated based on age and the original mortgage balance. Critical illness and disability insurance are also available. Disability insurance will typically cover your mortgage payments until you can return to work.
While high-ratio mortgage insurance is mandated, the other types of insurance offer you and your family important protections throughout your home ownership years.
If you are unsure about something, please contact me. I’m here to make sure that homebuyers and owners in Brampton, Toronto and the GTA achieve their dreams of homeownership and financial security. And education is a very important part of my process. I’m with you every step of the way!
