When you purchase a property, you may be a little overwhelmed by all the insurance offers related to the purchase of said property. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing, and it is important to know what insurance covers what.

For instance, Mortgage Default Insurance (there are three mortgage default insurers in Canada – CMHC, Genworth, and Canada Guaranty) is solely for the lender and not to be confused as mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are responsible to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.

Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.

Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.

Top 8 Benefits of using Mortgage Life Insurance

1. Peace of Mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you pass on.
2. Mortgage Paid Off in the Case of Death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.
3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.
4. It Protects your Family’s Finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.
5. Lost Wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time (ex. up to 3 years). Unexpected life events such as a serious car accident can result in missed mortgage payments because of loss of wages as you need to recover from injuries.
6. Portability –certain Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.
7. The Younger you are, the Less Expensive– Which means that this insurance is extremely affordable for a young, and likely, first time home buyer.
8. Good Health = Coverage for Unexpected Illness Later on –After illness strikes, it is more difficult to acquire life insurance.

Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are regarding the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if later you find an insurance product that suits you better.

Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.

For more information regarding Mortgage Life Insurance contact your mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.

NOV, 16, 2017 – This article is compliments of Geoff Lee, Accredited Mortgage Professional, Dominion Lending Centres

DIRECT RESPONSES OR INQUIRIES TO:  Denise Dunkley 905.380.2241  Email: ddunkley@dominionlending.ca

On October 17th 2017 the Office of Superintendent of Financial Institutions announced several new regulatory changes that will take effect on January 1st, 2018. Here is a summary of what you need to know about the upcoming changes.

Important Terms To Know Before Reading

Insured Mortgage / High Ratio Mortgage: Less than 20% down payment.
Non Insured Mortgage / Conventional Mortgage: 20% or greater down payment / equity.
Bank of Canada Rate (BOC): The 5 year fixed posted rate (currently 4.99%).
Contract Rate: The actual rate offered by the lender to the consumer.
Benchmark Rate/Qualifying Rate: Stress Test: Bank of Canada Rate OR Contract Rate +2%, whichever is greater.
LTV (Loan To Value): The size of a mortgage compared to the value of the property securing the loan.
TDS: A total debt service ratio (TDS) is a debt service measure that financial lenders use as a rule of thumb when determining the proportion of gross income that is already spent on housing-related and other similar payments.

1) QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES

Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate. The minimum rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.

How does this affect the mortgage consumer with a down payment of 20% or more?

The biggest impact will be on the amount in which the homebuyer will be able to qualify. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.

The stress test for non-insured mortgages applies to both fix rate and variable rate mortgages. On variable rate mortgages, the rate at time of funding is based on Canada’s prime rate (presently 3.20%) +/- a given margin. Today’s average variable rate is prime – .45% (3.20% is prime – 0.45%) = 2.75%. So applying the stress test of the greater of the two qualifying rates; Bank of Canada is 4.99% and the actual rate of 2.75% + 2% = 4.75% thus the BOC would be the qualifying rate to use since its higher.

For Example:

*The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization. **In order to qualify for any variable rate, as in the past, you must qualify at the BOC rate.

What if I don’t qualify at best rate lenders?

The qualifying stress test rule will also apply to alternative lenders (also know as B lenders) who are governed by OSFI. Any federally regulated lender will have to adhere to the stress test ruling. This will be all mortgage lenders in Canada excluding private lenders and Credit Unions. To counter this much higher qualifying rate, these alternative lenders will have the discretion to revisit their own income-todebt-ratio (TDS) calculation policies.

For example, presently these alternative lenders have the ability to approve mortgages with a 50% TDS (banks are more like 42% on average). Under the new stress test rules, alternative lenders will most likely have to increase the TDS policy to a higher figure to offset the higher qualifying mortgage payment under the stress test rate calculation. DLC will communicate to our network as soon as lenders are able to communicate their decision.

2) LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS

Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.

What does this mean?

OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called “hot real estate markets” like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy for the last 10 to 12 months.

3) RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS

Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as “bundling” or “bundle partnership”.

What does this mean?

For example: a consumer applies for 80% LTV mortgage and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then “bundles” the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This is no longer permitted as per OSFI.

HOW CAN DOMINION LENDING CENTRES HELP?

Now, more than ever, new homebuyers and existing homeowners are going to rely on mortgage brokers for their guidance and expertise in navigating through these regulatory changes.

There are differences among the many lenders that we have access to and the greatest value a broker can provide is the knowledge of the lending environment and in choosing which lender is best suited for your needs. Dominion Lending Centres will continue to educate our mortgage professionals as new data arises. This way you can be kept up to date with all of the latest information.