Difference Between PMI and Mortgage Protection Insurance
Buying a home in Ontario comes with a number of important decisions about the mortgage, as well as home insurance. How much can you afford? How do you protect your home? How do you safeguard your family’s future if something happens to you, or you are not in a position to pay the monthly mortgage installments? The answers to many of these questions depend on the type of mortgage insurance you purchase.
Learn more about mortgage insurance products, such as Private Mortgage Insurance (PMI) and mortgage protection insurance from an experienced Orr & Associates mortgage insurance broker near you.
Which Type of Mortgage Insurance Do You Need?
Private Mortgage Insurance (PMI): Here are some instances when PMI is necessary in Ontario.
- While purchasing a property
- If you plan on borrowing more than 80 percent of the cost of the home.
- If you are self-employed (regardless of how much you borrow)
- If you have a poor credit history (regardless of how much you borrow)
- While refinancing a property – If the established home equity value of the property is less than 20 percent.
Essentially, PMI protects the lender if you default on the loan but does not offer any protection to you as a home buyer. The PMI policy premium typically ranges from 0.6 percent to 4.5 percent, depending on the loan to value (LTV). LTV is the borrowed amount divided by the purchase price of the property. You have the option of making a single one-time payment and keeping the interest on your loan down. Alternatively, you can add it to your mortgage, and pay it in installments as part of your monthly premiums. Note that while PMI may be mandatory for your specific circumstances, all lenders have a legal obligation to cancel the PMI policy once you successfully pay your mortgage down to 78% of the original property value. As a borrower, you also have the choice to opt-out of a PMI policy after paying off 20% of the value of the property.
Mortgage Protection Insurance: Designed to protect the borrower, mortgage protection insurance:
- Covers your monthly mortgage payments for a certain duration if you lose your job or are incapacitated due to an injury or illness.
- Pays out the outstanding balance of your mortgage in the event of your death.
Unlike PMI, mortgage protection insurance is purely voluntary. Depending on your age, circumstances and risk factors, you may choose whether or not to purchase this policy. If you have other policies, such as critical illness or life insurance, which already cover your mortgage, you may not need this type of insurance. Consulting an experienced mortgage insurance broker near you will help in reviewing the comparable policies, understanding the fine print, and deciding which type of insurance best meets your requirements and budget.
Smart Insurance Decisions Need a Trusted Mortgage Insurance Broker
At Orr & Associates, we have decades of experience serving the insurance needs of families in and around the York and Simcoe regions in Ontario. Our experienced mortgage insurance brokers will take the time to discuss your requirements and review your financials, before advising you on appropriate policies and coverages to protect your home and your family.
Get access to policies from the best insurance companies in Canada with the help of an experienced Orr & Associates mortgage insurance broker near you. Call 1 (866) 521 5926 toll-free or request a free quote online.