Mortgage insurance helps protect your family, your home, and your savings by paying off your entire outstanding mortgage balance should you die unexpectedly. As such, most homebuyers who finance a home think about mortgage payout insurance as a must-have.
Mortgage insurance has many benefits, however, it might not always be the best mortgage protection option for you. Continue reading to find some insurance tips on how to protect your mortgage, as well as tips about ways to save money on mortgage insurance (should you do decide that is the right choice for you).
Tips to Save Money on Mortgage Payoff Insurance
Not everyone can afford to pay for a house in cash, and that is why home insurance is so popular. But did you know lenders or banks usually drive a hard bargain on home loans?
Furthermore, if you buy insurance — usually not the smartest mortgage protection strategy — you will be handing them even more of your money. Do you really want to do that?
We recommend, considering term life insurance, instead. It is the cheapest way to protect your home. If you die unexpectedly, your family can use the payout to pay off the mortgage balance.
Surprised that term life insurance is less expensive than mortgage insurance? Well, do not be. Here we will demonstrate why term life insurance is a better option than mortgage payoff insurance for protecting your home.
Joshua, a 30-year-old man, wants to insure his $500,000 mortgage that he took out recently. He is looking at a term of 25 years.
Our research shows Joshua could save $5,700 over 25 years by opting for term life insurance rather than taking mortgage protection from his favourite bank. Now, that is a decent sum, any way you look at it.
And he may save even more because of:
- Lower term life insurance premium rates that you can qualify for if you are in good health
- The increase in the insurance premiums as you renew the mortgage rates over time
Savings could be a lot more for those in their 40’s and good health. For instance, if a 40-year-old, healthy woman was to choose a 25-year term life policy instead of mortgage insurance, she would save $18,400 (That is nearly $740 a year.)
The long and short of this is: Term life insurance offers you far better value for money than mortgage payoff insurance.
Remember this when you are thinking about buying a policy for mortgage protection. We also recommend that you compare multiple quotes before choosing a provider, because premium rates may vary from one insurer to another. This is the best way to ensure you get the right coverage and good value for money for your home insurance.
Term Life Insurance Vs Lender-Based Mortgage Insurance
You can use both term life insurance and mortgage for mortgage insurance. However, as we discussed, the former is the far more affordable option. So, if you are looking for tips on how to lower mortgage repayments, simply buy term life insurance instead of mortgage insurance.
Besides being cheaper, term life insurance has several other advantages over lender-provided mortgage insurance. These are:
- More coverage
Here is the thing: Mortgage payoff insurance is tied to your mortgage — but term life is not. In the case of mortgage protection, the payout equals the balance on your mortgage. By contrast, you can buy as much term life insurance as you can afford and/or qualify for.
- Level death benefit
Term life has a level death benefit. This means the payout remains the same throughout the term. On the other hand, the death benefit amount of a mortgage insurance policy reduces over time as you pay your installments. The premium, however, remains unchanged. In short, as time passes, you will be paying the same premium as before, for less coverage.
- You can use the payout however you like
In the case of mortgage payoff insurance, your family must use the payout to pay off the mortgage, even if other needs are more urgent. Term life, by contrast, gives your loved ones the freedom to use the benefit however they like. They may use it to pay off the home loan if that is most important for them. If not, they may use the money to meet more urgent needs, like paying college tuition fees.
- Choose your own beneficiary
If you take out an insurance policy, the proceeds will directly go to the lender after your death. Whereas with a term life policy, you get to choose who receives the death benefit. You are free to name anyone as a beneficiary, your spouse, children, or even a pet.
- Extend the policy term
Almost all term life policies include a renewability rider. A free add-on, that allows you to renew your term life policy without a medical exam up to a certain age. By contrast, there is no renewability guarantee for mortgage payoff insurance. The provider can reject your renewal request if your health is not what it used to be.
Unlike mortgage insurance, term life is fully portable. That is because it is not tied to your mortgage lender but rather you. Even if you switch lenders or sell your home, your term life policy will remain intact, as long as you pay the insurance premiums. By contrast, if you refinance your home loan, you will likely have to purchase a new mortgage payoff insurance policy.
Bundling Your Mortgage and Auto Insurance
Insurance companies reward customers who give them more business with big discounts. So, if you are looking for tips to reduce your mortgage insurance and save money, buy home insurance from the same provider that insures your car. You may be able to save over 19% by combining auto and home insurance policies with the same provider.
Try Buying a Newly Built House or Condo
Insurance companies like newly built homes because they have new electrical and plumbing. As such, they are less likely to have problems that will lead to claims.
If your home is not yet 10 years old, you may qualify for a discount on home insurance in Canada. Insurers typically offer lower rates for coverage and substantial discounts to applicants with new homes.
How much discount can you get on home insurance for insuring a newly constructed home?
Expect to save anywhere between 20%-25%. The biggest discount goes to newer homes built using quality, durable, and fire-resistant materials.
Pay Your Premiums Annually
Insurance companies offer a range of discounts to applicants for everything, from keeping their policy active for over three years to paying premiums annually. If you are looking for ways to reduce the cost of your mortgage loan insurance in Canada, make sure you are aware of the discounts available through your provider and access them accordingly.
Allow for a Credit Check
A good credit score may get you more flexible terms or a handsome discount on your home insurance. So, if you are a financially responsible person, do not think twice before granting permission to the insurer to run a credit check on you. It may well save you a few hundred dollars a year.
Do Not File Small Claims
Not every claim is worth filing. A minor claim can push the insurance cost up since you will miss out on the no-claim discount.
Shop for the Best Rates
Home insurance rates vary wildly, and comparison shopping is the only way to ensure you get the best deal. Collect quotes from as many providers as you can and select the one that offers you the best value.
Mortgage insurance covers your mortgage repayments should you die prematurely. Having said that, it is usually more expensive than term life insurance, so seriously consider term life insurance for mortgage protection, instead. However, if you find mortgage payoff insurance works best in your situation, use the listed tips to cut down on insurance costs while still being protected.
Whether you use term life or mortgage insurance for mortgage protection, you can count on Dundas Life to find you the best ways to save money on your home insurance. We work with some of the top providers in the Canadian Life Insurance Industry and can help you find the right coverage in just a few clicks.