Get mortgage insurance

I’ve touched on mortgage insurance before, but after a few conversations the last two weeks, I feel it is worth revisiting.

When you are working on your mortgage, there are two types of insurance that your mortgage professional will talk about.

The first is mortgage default insurance, which is often referred to as CMHC insurance. There are actually three organizations in Canada that provide this insurance:

  • CMHC
  • Genworth
  • Canada Guaranty.

Mortgage default insurance protects the lender in the event that the borrower defaults on their mortgage payments. This insurance is mandatory if you put down less than twenty per cent when you buy your home.

It is a one-time premium, which is added to your mortgage up front. It is calculated on a sliding scale, so the more of a down payment you have the lower your premium will be.

This premium can be ported from one property to another, which can save you thousands of dollars.

The premium protects the lender, so if your home goes into foreclosure they do not have to absorb any loss.

The second insurance that will be discussed with your mortgage professional is mortgage protection insurance. This is commonly life and disability insurance which protects you as the borrower.

Banks and brokerages offer different coverages, so it is important to understand a few key differences.

This optional insurance is generally paid monthly as you go along, and in most cases can be cancelled at any time.

In my early days, I didn’t spend much time discussing the insurance coverage we offer. At the time, we had a different product that (in my opinion) was very expensive and didn’t offer great coverage.

Over the years, I’ve heard many stories about how clients’ lives have been impacted by either having or not having insurance coverage in place.

Within two months of each other, two of my clients had very close calls — about the same time our firm changed the insurance product we were offering.

This product is far more reasonably priced, is portable, and flexible to meet client needs.

As a broker, I must offer my clients optional life and disability insurance coverage. The product our firm offers is Manulife Protection Plan (MPP). Clients have the option of waiving all together or taking life and-or disability coverage.

Most lenders offer coverage a second time when clients are either signing documents in the branch or at the lawyers at time of closing. A key difference between what we offer up front and what is offered by the lender is the portability option.

MPP can be ported from one lender to another in the event that you choose to switch lenders down the road. It can also be ported from one home to the next when you sell.

Most lender products only cover this particular home and their own mortgage. If you switch or sell down the road, you will need to requalify based on your age at the time, which means your premiums will likely go up.

I am a firm believer in having insurance to protect yourself and your family in case something unfortunate happens.

I am not a licensed insurance professional, so when I discuss insurance with my clients I always ask if they have coverage in place.

Part of our discussion includes my recommendation to discuss coverage with a life insurance professional as there may be products out there that are a better fit for their particular situation.

MPP insurance is free for the first sixty days, so if I have clients that plan to look into more detailed options I suggest they opt in and cancel down the road after they’ve made the time to meet with an insurance professional.

This product kicks in the from the time the application is submitted and is fully underwritten up front.

Some people have strong opinions one way or the other about the value of insurance.

Based on my experience I feel strongly that it is important to review your options with a professional to ensure you are adequately protected.

Creative financing

Part of what we do as mortgage brokers is explore options for clients.

This past week, I worked with two families whose financing had been declined by their banks.

In both cases, the families had already sold their existing homes and written offers to purchase new homes. Both had done well on their sales and had significant equity to work with.

They were shocked to learn they didn’t qualify for similar sized mortgages.

Sometimes a fresh perspective makes all the difference.

When I reviewed the first application, I took a look at what the outstanding debt. Since they bought their previous home they had purchased two vehicles and were carrying about $12,000 on an unsecured line of credit.

The vehicle payments were $457 and $692 respectively.

For context here, your mortgage borrowing power decreases by about $100,000 for every $500 you have in payments for consumer credit (loans, credit lines, credit cards, etc).

Looking at this family’s situation, I suggested using some of the equity from the sale to pay off their truck loan and line of credit.

This reduced their monthly payments by $1,052 ($360 toward the credit line plus $692 for the truck) and meant that the numbers work for them to move forward with their purchase.

This was a small tweak, but made all the difference.

My preference is that people put their equity back into a new purchase as opposed to paying off consumer debt. However, this decision needs to be made carefully by the clients as they are the ones ultimately responsible for paying the bills each month.

In some cases this is the only way to qualify for a new mortgage.

The second family’s application involved a slightly different tweak.

When I calculated the funds they had available for their down payment and closing costs, it looked like they had $100,000 available for their down payment.

The purchase price on their new home was $549,000.

We discussed increasing their down payment to $109,800, which is 20% of the purchase price. They spoke to her parents, and the parents agreed to give them $10,000 to make up the difference.

What this meant for the clients was that we were able to get an approval with a 30-year amortization. We found a lender that accepts their Child Tax Benefits from the federal government as income. Between the extra income and the slight increase in amortization, they did qualified for the new mortgage they needed.

Again, my preference is to see clients stick with shorter amortizations whenever possible.

This family has chosen to have one parent stay at home while the children are young, so the smaller mortgage payments are a good solution for the short term.

We talked about options for increasing their payments once the children are in school and the dad is back to work.

Each family and situation is different, and often we are able to look for creative options to help find the right mortgage. Sometimes a second set of eyes is all it takes.

Support those who back you

Every once in a while I read something that really seems to hit home.

Last, week I came across something on Facebook that I’d like to share with you. This will circle back to mortgages, I promise.

A father, before he died, said to his son: “This is the watch your grandfather gave me and this is more than 200 years old. Before I give it to you, go to the watch shop on First street, and tell him I want to sell it, and ask how much they'd offer.”

The son went and after several minutes, he came back to his father and said, "The watchmaker offered to pay $5 because it's old and has a lot of scratches.” He then asked him to go to the coffee shop.

The son went and after an hour or so, he came back and said: “The coffee shop owner offered $5, father.”

“Go to the museum and show them that watch.” He went ahead and then came back happily.

“They offered me a million dollars million for this piece.”

The father said: “I wanted to let you know that the right place values you in the right way. Don't put yourself in the wrong place and get angry if you get treated like trash. Those who know your value are the ones who appreciate you, don't ever stay in a place that doesn't suit you."

Know your worth.

So how does this relate to mortgages?

During the last few weeks, I’ve been working on some very complex and challenging mortgages. Particularly for self-employed individuals, finding the right lender and mortgage product can feel a little like sorting out a Rubik’s cube — tough to make all of the pieces line up properly.

From time to time, this can feel disheartening when the numbers don’t line up. I found the quote above after a particularly frustrating day.

After a good night’s sleep, I woke up with an idea as to how to restructure one of my applications, and was pleased to find an approval for my clients within a day.

I am grateful as for the most part I work with amazing people. I love what I do as no two days are ever the same. Each day presents new opportunities to learn.

The above quote reminded me that even though some days are a little tough, I am blessed to work with clients that appreciate me.

Every once in a while I am reminded that people operate differently.

For me, its been a gradual evolution. When my girls were younger and funds were tight, I didn’t have much of a choice – I had to find the cheapest alternatives (food, clothing, etc), which generally meant shopping at the big box stores.

At a learning event a few years ago, we talked about self-employed individuals and small businesses in our community. We talked about how these smaller businesses support individuals and families locally. Trying to look for a deal or have people drop their prices directly impacts their bottom line.

Now, if I have the opportunity, I will purchase something made locally or from a smaller local vendor before I will buy the same item from a bigger chain store.

And how does this tie into mortgages?

I’ve been working with a family in Northern B.C. for almost two years. We’ve spent a lot of time discussing strategies and options as they have been looking for a unique property and are stretching their budget to make it happen.

They called me a few weeks ago to say that they had written an offer and called one of the national discount mortgage brokerages that advertise cheap mortgage rates for their approval.

They were really frustrated as the person they were working didn’t seem very knowledgeable, and that the rate he came back with was not the same as what was posted in all of their advertisements.

The unfortunate part of their story is that they lost the property as they were unable to get their financing in order and the seller would not extend the contract.

There is a lot more to finding the right mortgage than the lowest rate. There can be clauses and conditions that may cost you thousands down the road if you don’t understand what you are signing.

Working with a professional that takes the time to explain both the process and the fine print is key.

When you are purchasing goods or services from someone you know, rather than trying to wangle the cheapest alternative take a few moments to remind yourself of the value of working with someone you know, like, and trust.

I am very grateful for the amazing people in my world, professional and personal. I feel very blessed to work with clients who appreciate the skills and knowledge I bring to the table.

Hoping you’ve been able to enjoy time with family and friends this long weekend.

Happy Thanksgiving!


Get title insurance

When you get down to the nitty-gritty of buying a home, you need to make a lot of decisions in a short time.

Regardless of how prepared you are, it can feel a little overwhelming.

One of the last-minute decisions you will be asked about is title insurance. This will be discussed with your lawyer or notary just before your mortgage finalizes, when you are signing your final mortgage documents.

Most lenders require that you purchase title insurance.

When I first started working on mortgages close to 30 years ago, lenders required clients to provide a survey certificate when they purchased a home. Usually a copy was available from the seller, or sometimes from the respective city office.

If there was not a copy available, clients would have to pay for a new survey to be done. In some communities, this could cost close to $1,000, so survey certificates were (for the most part) carefully kept for future use.

Over the years, this requirement has changed. Now, most lenders require title insurance in lieu of a survey certificate.

Title insurance is generally purchased at the time your mortgage closes. In B,C., for purchases under $1 million title insurance costs approximately $225.

There is a mandatory policy that protects your lender, and you are able to purchase a personal portion as well. The personal policy generally costs about $50-$75.

This is a one-time cost that is usually included in your final closing costs.

What is title insurance and why is it important?

Title insurance is designed to protect the lender (and you if you buy the personal policy) against title fraud and potential defects relating to the title of your home.

Some of the risks that title insurance protect you against include:

  • An unforeseen defect in your title ownership.
  • Negligence or errors made by your lawyer relating to title risks.
  • Unpaid utilities, mortgages, taxes or condo/strata maintenance fees – these are known as liens.
  • Fraud, survey or records errors.
  • A pre-existing outbuilding that must be removed because it encroaches on a neighbouring property.
  • The gap period between when a property purchase is finalized or closed and when the title is officially registered with the government.

Over the last week, I’ve had two separate calls with title-related questions. One of my clients in Northern B.C. has an accepted offer on her home.

While doing their due diligence, the prospective purchasers discovered an error in the property line.

They are in the process of trying to sort out whether the developer made an error in building the house or whether the city records are incorrect.

Either way, the client did purchase the optional title insurance, so based on her initial inquiry to the title insurance company, it sounds like her situation will be sorted out and any costs will be covered by the policy.

Another client ran into a situation where the home they bought had a shed built almost three feet over the neighbour’s property line.

They are in the process of finding out exactly what costs their title insurance will cover as the City has ordered them to tear down the shed.

More The Mortgage Gal articles

About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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