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Finance

Beware of mortgage insurance!

Congratulations! You have the house of your dreams since the vendor accepted your offer and the bank approved your mortgage. What a bank will typically offer you now is its own brand of mortgage protection insurance to protect your family should anything happen to you and pay off the debt it represents. The offer will sound good, especially as there is no medical testing or reporting to be done, but caveat emptor! Be careful you don’t fall victim to one of this country’s worst financial scams: creditor group insurance.

The devil, they say, is always in the details, and creditor insurance has enough of them to ensure that you, the mortgagee, has the dice loaded against you and in the favour of the bank throughout the term of the policy. Why? Because creditor insurance is sold under a group plan by an insurance company to the bank, and so is tailored to the bank’s needs, not yours.

The gross unfairness of this type of insurance was exposed by CBC TV’s Marketplace, which we will discuss below. As an aside, it might be interesting to learn that should you die while carrying a mortgage the bank will actually charge you a penalty for breaking the agreement! The penalty is added to the mortgage that is paid off by the bank’s insurance. This is just one example how the mortgagee has more control over their affairs when insurance to protect a mortgage is provided by a licensed agent.

Here’s a handy list of eight (yes, eight!) reasons why you should never take the bank’s creditor insurance, one of the most lucrative products offered by the banks and the worst deal available for mortgagees.

FIRST REASON. Creditor insurance is declining balance insurance. That is, you will pay the same premium every month, even though any payout will be reduced to match the amount owing on your mortgage. Every mortgage payment reduces your balance, but your coverage will decline accordingly. Sounds unfair? It gets worse; read on!

SECOND REASON. Should you pass away, it’s not your loved ones who will be the beneficiaries. No, siree, it’s the bank! Under the terms of creditor group insurance, you do not have a choice as to whom the payout will go. All rights to designate a beneficiary other than the bank and for any purpose other than paying off a mortgage are lost once you sign up for this money-making scheme of the banks.

THIRD REASON. Your insurance rates are by no means fixed; they could go up at any time. Why? Because creditor group insurance is just that. It’s based on the perceived risk of the group to which you, as the mortgagee, have been assigned by the backing insurance company. If the experience of the group as a whole looks less positive than before, your rates will go up. This is so the bank can protect itself against loss.

FOURTH REASON. Even if you don’t smoke you’ll still pay the same rates as a smoker, which will be higher, of course. Creditor group insurance only considers your age and will not give you a preferred rate based on your actual health history. If you take the bank’s insurance you will pay the same the same as someone who smokes and is in questionable health.

FIFTH REASON. If another bank offers you a better mortgage rate, and you decide to change lenders, then you will lose your insurance coverage. That’s because the bank is the owner of the policy who will cancel it the moment you switch! In such a case you will have to reapply for coverage, which will be more expensive because you will now be older, and even more so if your health has taken a turn for the worse.

SIXTH REASON. Your bank cannot give you professional advice on taking life insurance for yourself, and your family, since banks typically employ few licensed agents.

SEVENTH REASON. Think you’re covered for as long as the term of your mortgage? Then think again, because creditor insurance can be canceled at the bank’s discretion, and you would have no recourse whatsoever. Why would the bank do such a thing? This is because your insurance policy might not fit your bank’s purpose, or overall business model, at some time in the future. Your bank representative may protest long and hard that this would never happen, but the fine print on the agreement will say such a thing is entirely possible.

 

And the greatest reason of all…..

EIGHTH REASON. Your bank may pay no benefit at all should you pass away, because the bank does not conduct underwriting when a policy is written, but rather at the time of death. Incredible as it may sound, the bank will make no attempt at all to gauge the risk of insuring you at the time you decide to opt for their insurance package. This is in sharp contrast to purchasing a policy through a licensed broker whose company will conduct underwriting at the time of application before issuing you a policy.

CBC Marketplace revealed the scam that is bank creditor insurance in its feature, “In Denial”  and described in detail how it works.

Ever had your doctor put a cuff on your arm to measure your blood pressure? Most of us have, but that’s considered a test for high blood pressure. When asked if we have had a test for high blood pressure, though, most of us will respond in the negative. Ladies, have you ever had a Pap test or a mammogram? Men, ever had a PSA test for the health of your prostate? Most likely, you have. Problem is, those are tests for cancer but most people will respond in the negative when asked if they have ever had one. When a claim is made, the banks will go back to those responses and match them against doctors’ records. For what purpose? To use those responses to deny claims. The CBC Marketplace feature said the banks do not reveal what percentage of claims they deny; makes you wonder why.

Because it is so patently unfair, many states in the U.S. have banned post-claim underwriting. Here in Canada just one province has made it mandatory that life insurance be sold by a licensed broker who will not only ensure underwriting takes place at the time of application, but also advise the client on how to respond to health questions, and that is Alberta. This was no easy feat. When the Alberta Insurance Council first tried to implement these regulations in 2001, the banks fought the province tooth and nail, right to the Supreme Court of Canada. It was not until 2007 that the Court ruled in Alberta’s favour, saying the province was within its rights to protect the consumer in this fashion.

The upshot is that it pays to purchase mortgage protection insurance from a licensed insurance professional who is duty bound to keep your best interests at heart. In the same way, it makes sense to apply for a mortgage through a licensed broker, such as Ms. Laurie Baird of Verico Mortgage in whose column this article appears.

A policy owned by a mortgagee (rather than a bank) will have guaranteed rates, a benefit that will remain constant, provide for a beneficiary of your choice, be based on the state of your health, be portable, and can never be cancelled (so long as you pay the premiums, of course!)

 

Article written by Chuck Duerden.

Chuck Duerden is a licenced insurance agent with Septen Financial. He may be reached at [email protected], 250.575.3798. Follow Chuck as Charles Duerden on Facebook, LinkedIn and Twitter.

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Goal setting keeps resolutions on track

January is a popular time of year to set resolutions for physical fitness, personal finance or new career directions. But with the admission of failed resolutions in February becoming as much of a ritual as the resolutions themselves, it’s worthwhile to take a look at how you approach setting and achieving your goals. Angus Reid polled Canadians on their goal-setting habits and found that, while most Canadians set goals regularly, many could benefit from some simple strategies to keep them on track.

According to the survey, more than half of Canadians keep track of their goals using a ‘running list’ in their heads. Only about 15 percent write their goals down, while twice as many (30%) do not keep track of their goals even though they report aspiring to greater goals in life.
 
This latest survey is part of a growing body of research from American Express Canada that reveals a rising class of Canadians, known as ‘potentialists’, that take a focused approached to realizing their personal potential. Whether it is a desire to volunteer more, go on adventure travel or learn a new skill, these ‘potentialists’ bring a proactive attitude to other pursuits, defining success based on how fully they are able to realize their aspirations.
 
If you’re looking to broaden your resolutions this New Year, take some inspiration from ‘potentialists’ and try one of the following ideas:
 
Track your goals like you track your finances

If you’d like to visit the African continent next summer to help build a school, ask yourself what you need to do tomorrow to get one step closer to that goal.
 
 
Pre-empt what might tempt
 
You should be hitting the books for that new language course but your favorite TV show beckons. Prepare yourself psychologically for temptations that will surely come your way and have a strategy and study schedule in place to deal with it before it happens.
 
 
Combat the fear factor
 
Twenty percent of Canadians surveyed cite ‘fear of failure’ as a reason why they don’t meet their goals. Recognize when irrational fears are getting in the way of your progress.
 
 
Willpower is like a muscle
 
Giving into little temptations can set off a domino effect. Be aware that if you don’t exercise willpower regularly, you may lose it.
 
 


First-time homebuyer mistakes


If you’re on the hunt for your first home and want to have a smooth and successful home purchasing experience avoid these common first-time homebuying mistakes.

If you are looking for your first home and need advice on how much you can afford, please feel free to contact me at (250) 862-1806.


1. Thinking you don’t need a real estate agent

You might be able to find a house on your own but there are still many aspects of buying real estate that can confuse a first-time buyer. Rely on your agent to negotiate offers, inspections, financing and other details. The money you save on commission can be quickly gobbled up by a botched offer or overlooked repairs.
 
 
2. Getting your heart set on a home before you do your homework

The house that’s love at first sight may not always be what it seems, so keep an open mind. Plus, you may be too quick to go over budget or may overlook a potential pitfall if you jump in too fast.
 
 
3. Picking a fixer-upper because the listing price is cheaper

That old classic may have loads of potential, but be extra diligent in the inspection period. What will it really cost to get your home where it needs to be? Negotiating a long due-diligence period will give you time to get estimates from contractors in case you need to back out.
 
 
4. Committing to more than you can afford

Don’t sacrifice retirement savings or an emergency fund for mortgage payments. You need to stay nimble to life’s changes, and over extending yourself could put your investments – including your house – on the line.
 
 
5. Going with the first agent who finds you

Don’t get halfway into house hunting before you realize your agent isn’t right for you.The best source: a referral from friends. Ask around and take the time to speak with your potential choices before you commit.
 

If you need help with finding a real estate agent, home inspector, contractor or lawyer to make your home buying experience go more smoothly please contact me [email protected]



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Reasons to use a mortgage broker


1.  Get independent advice on your financial options.
 
As independent mortgage brokers, we are not tied to any one lender or range of products. Our goal is to help you successfully finance your home or property and start by getting to know your home ownership plans. We will provide you a mortgage that meets your specific need and make the process as stress free as possible.

2.  Save time with one-stop shopping. 
 
The number of lenders in today’s market are many - and we know you’d probably rather spend your time house hunting! We work directly with dozens of lenders, and can quickly narrow down a list of those that suit you best. It makes comparison-shopping fast, easy, and convenient.

3.  We negotiate on your behalf. 
 
Most people are uncomfortable negotiating mortgages directly with their bank - we negotiate mortgages every day on behalf of Canadian homebuyers. You can count on our market knowledge to secure competitive rates and terms that benefit you.

4.  More choice means more competitive rates. 
 
We have access to a network of major lenders in Canada, so your options are extensive.  In addition, we also know what’s being offered by credit unions, trust companies and other sources. And we can help you take care of other requirements before your closing date, such as sourcing mortgage default insurance if your down payment is less than 20% of the purchase price.

5.  Ensure you get the best rates and terms. 
 
Even if you’ve already been pre-approved by your bank or another financial institution, you’re not obliged to stop shopping! Let us see if there is an alternative to better suit your needs.

6.  Get access to special deals and add-ons. 
 
Many financial institutions would love to have you as a client, which is why they often offer incentives to attract credit-worthy customers.  These can include retail points programs, discounts on appliances, shopping clubs, and more. We do the math on which offers might be worth your attention when it comes to financing or mortgage insurance - so you get the perks you deserve.

7.  Things move quickly! 
 
Our job isn’t done until your closing date goes smoothly. We’ll help ensure your mortgage transaction takes place on time and to your satisfaction.

8.  Get expert advice.  When it comes to mortgages, rates and the housing market, we’ll speak to you in plain language. We can explain the various mortgage terms and conditions so you can choose confidently.

9.  No cost to you. 
 
There’s absolutely no charge for our services on typical residential mortgage transactions. Like many other professional services, such as insurance, mortgage brokers are generally paid a finder’s fee when we introduce trustworthy, dependable customers to a financial institution. These fees are quite standard and nearly industry-wide so that the focus remains on the customer.

10.  Ongoing support and consultation. 
 
Even once your mortgage is signed and paperwork is complete, we are here if you need any advice on closing details or even future referral needs. We are happy to be of assistance when you need it.
 

If you need help with any of your mortgage needs either purchasing a home, refinancing your existing mortgage or shopping the renewal of your existing mortgage please feel free to call 250  862 1806 or email me at [email protected].



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About the author...

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business for 17 years starting as a lender with Royal Trust. She later worked at the Royal Bank as a Mortgage Consultant and 11 years ago became a Mortgage Broker. As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products. Laurie has a Bachelor of Education degree from UBC.

Contact her at 250-862-1806 or by fax 712-0209 or visit:
http://www.okanaganmortgages.com/

Visit Laurie's blog at: http://www.okanaganmortgages.com/blog.html




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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.


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