About half of all homes purchased today involve what are called high ratio mortgages. This means the buyer couldn’t raise the 20% downpayment which is normally required by banks and other lenders to purchase a home or condo. In the past, First Time Homebuyers inability to raise the necessary downpayment meant a person or couple wouldn’t be able to get a home mortgage.

Since home building and real estate sales in general contribute so much to the well being of the Ontario economy, government and mortgage lenders have been encouraged to help out in order to stimulate home buying. Lenders want to diversify risk so a plan was developed to allow first time homebuyers purchase a home using less than 20% downpayment. For a typical Mississauga home worth $330,000, it would be a downpayment of $66,000 plus other expenses. Disastrous for most home buyers today.

Home Mortgage Insurance

The mortgage insurance is an extra payment for the homebuyer however it provides the mortgage lender with the assurance they need in taking their lending risk. The banks do not offer mortgage insurance. Two main mortgage insurance providers are the CMHC and Genworth Financial (a part of GE Financial Services).

Genworth Financial here in Mississauga offers a great first time home mortgage insurance product. You can learn more about it through us at Sell Mississauga. Contact our mortgage insurance specialist Nick Dimulkas who can advise you on available mortgages and on how to apply for mortgage insurance with Genworth or CMHC.

To ensure that your family inherits your home and not your home loan it is advisable to take a home mortgage insurance along with your home loan. Loan insurance comes in handy in case of death of the policyholder. These covers are applicable in case of vehicle loan, personal loan as well as educational loan but it is significant in case of a home loan due to the long repayment period and huge sum involved.

The working

This works like a simple term insurance plan except that the sum assured reduces with the amount owed to the lender. These are usually single premium plans where the entire premium is paid while buying the policy. The premium amount is funded by the lending institution and the customer repays it in EMIs. In case of joint borrowers, insurers offer cover for their respective shares of the loan. Usually the bank extending the loan offers the insurance. Like, SBI Life will primarily offer the product to those availing loans from SBI. Also ICICI Bank’s customers will be able to buy this cover from ICICI Prudential Life Insurance.

Lower premiums

Insurance premium is based on the loan amount, age of the borrower and loan tenure. The customer has the option to choose between the initial sum assured equal to the loan amount or the outstanding amount. For example in case of ICICI prudential Life, If a 30 year old female buys this cover for a home loan of Rs.40 lakh with repayment period of 15 years, it will lead to a premium of Rs.65,400. if the policyholder dies during the term of the plan, benefit based on original EMI schedule is payable. Benefit will be used to pay the outstanding loan and surplus if any will be given to the nominee, if any.

Why go for it?

This kind of insurance is very important in case of an under construction property. As in the event of death of the borrower, bank has the right to attach the property if the dependents are unable to repay the loan. In such cases an insurance would pay the entire sum assured to the bank as on that date of the insured’s death. Thus outstanding in bank book is cleared and balance if any is paid to the nominee or dependent. And if the loan is repaid the policy will be considered surrendered and the liability ceases. A portion of the unutilized insurance for the remaining period is paid back to the customer on obtaining a No Objection Certificate (NOC) from the bank.

Limitations

• Covers only liability so it will not provide for dependents’ other needs incase of demise of the policyholder
• Premium is to be paid sincerely though it can be funded as part of the home loan.
• Incase of absence of life cover while purchasing a home loan, a term plan for the maximum sum assured is more feasible
• Limitation of choice as home mortgage insurance can be purchased only from the insurer who has a tie-up with your lender bank.

(Source :- http://www.deal4loans.com/loans/home-loan/importance-of-home-mortgage-insurance-with-home-loan/)