The Deakin Blog

Do I need mortgage insurance?

November 11th, 2010

Do I need mortgage insurance?

I currently have enough life insurance to cover my mortgage, but my bank is recommending mortgage insurance for when I buy my new home, since this new home purchase will increase the amount I owe. Is it a good idea?

Mortgage insurance is designed to pay off the rest of your mortgage in the event that you or your spouse dies with money still owing on your home. It sounds like a no-brainer, but in most cases, it turns out not to be such a great deal. There are lots of problems with mortgage insurance:

• It’s non-transferrable, so premiums are lost and the policy is cancelled if you move.
• The policy limit, typically $500,000, can be too low.
• The monthly premiums are the same throughout the policy term, even though the potential payout shrinks. For example, if a homeowner with mortgage life insurance dies after 10 years of payments on a $250,000 mortgage, the lender would pay approximately $185,000 to cover the remaining mortgage debt. If that same homeowner died 20 years into making payments, the payout would be only $77,000.
• Some policies limit claim payments until a specified time period had passed.

You can’t be denied a mortgage if you refuse mortgage insurance, and in most cases, getting term life or regular life insurance is cheaper, easier and more flexible. The only circumstance where mortgage insurance makes sense is when your personal situation makes it difficult, if not impossible, to obtain more conventional insurance coverage.

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Bill

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Dawn

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Patti

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Shere

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Camille

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Donald

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Louis-Robert

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