Your home is a significant investment; for many people it is the biggest purchase they will ever make. If you live in Toronto or Vancouver, that investment has an even bigger impact. The markets in those two cities are hot; any real estate you buy there is hard won – and can appreciate quickly in value. However, whether you buy a condo in one of Canada’s hottest markets, or you find the perfect condo in a quieter city, it is your home and you want to protect it. So, should you buy mortgage insurance? Maybe not. Surprised? There is a good reason to sidestep mortgage insurance in favour of a better option. Let’s take a closer look.
What is Mortgage Insurance?
Mortgage insurance is offered through your bank or lending institution. Should you pass away or suffer a disability that leaves you unable to work, this insurance steps in to take care of the mortgage payments. The terms and conditions will vary from policy to policy, so be sure to understand the nuances clearly.
The pros of mortgage insurance are that since your bank is offering it, you don’t have to hunt around or compare rates. It’s a fast way to get the coverage you need to protect your investment.
The cons, however, are that you may get a better rate by shopping around. Also, mortgage insurance through banks is not portable. If you renew your mortgage elsewhere, your insurance doesn’t follow. In some cases, as you pay off the mortgage balance, your rate does not change. You wind up spending more for less. The biggest drawback is that the bank is the beneficiary. That leaves no flexibility or cash for your family – the mortgage is paid off, but what about other expenses to which the benefit could have applied?
Difference Between Mortgage Insurance and Condo Insurance
Condo insurance is very specific and can be customized to your needs. Where your bank’s mortgage insurance provides money to the bank for the mortgage, condo insurance protects against:
- Personal liability: if someone is injured on your property (such as slipping on water in your kitchen) or you damage another unit (lit a candle, caused a small fire, burned through to the neighbour’s unit…)
- Contents: not just the contents in your unit, but in your storage locker too (if it is on site and part of the condo property).
- Special assessments: if there is not enough money in the reserve fund, the condo board can pass on costs of unexpected repairs or overly expensive repairs to you as per this CBC article.
- Title/Liens: you may not be aware of a claim against the title (or a lien) on your condo until it’s too late. Title insurance protects against this risk.
Basically, condo insurance protects the condo if something happens to it or to its contents. Mortgage insurance only protects the mortgage payments.
Why it is Not a Good Idea to Use Mortgage Insurance
Just having mortgage insurance alone does not provide the full spectrum of coverage you need. It pays to have coverage for the mortgage and coverage for the condo and its contents, but there is an alternative to mortgage insurance – one that makes your money go further and can offer a wider range of protection.
What is a Better Alternative to Mortgage Insurance?
Unlike mortgage insurance, life insurance pays your beneficiaries, not the bank. You can choose term life insurance (the term being the length of the mortgage) and put on a disability rider. Life insurance remains active unless you let the policy lapse, or the term runs out. It retains its value; if used to pay off a mortgage and extra money remains, it is there for your family (the more you pay off the mortgage, the more insurance funds are available to be applied elsewhere). Term rates are very affordable, so it is easy to purchase both condo insurance and term life insurance.
Costs of condo insurance differ by location, but the costs of mortgage insurance would be the same for the same person everywhere. For example, for condo insurance in Toronto you can pay $25/month, for condo insurance in Vancouver – $45/month, condo insurance in Calgary – $35/month and condo insurance in Edmonton – $40/month. At the same time mortgage insurance (e.g. for a $400,000 condo) can cost you $35/month across all these locations because it does not depend on geography.
Speak with a broker today to ensure you have the right insurance in place for you and your condo. That is a conversation that can protect your biggest asset, and the biggest purchase of your life.