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Have you ever googled “is home insurance the same as mortgage insurance?” You’re not alone. When it comes to buying a home, your mortgage advisor or broker will discuss the option of getting mortgage insurance — but that’s not to be confused with home insurance, which your lawyer or lender will request to see before you’re approved for a mortgage. In this article, we break down the key differences between home insurance vs mortgage insurance, and why having both is better.

What does home insurance cover?

Home insurance is like car insurance — but instead of protecting your car and those in it, you’re protecting your home and its contents. It’s important to talk to your insurance provider to understand what’s included in your premium as there may be exclusions to keep in mind, as well as inclusions — what good is being covered if you don’t know what you’re covered for? By getting home insurance, you’re protecting yourself as well as your home from unforeseeable events and other unfortunate circumstances.

How much is the average premium?

Premiums differ depending on where you live and which insurance provider you’re with. Why the difference in cost? When you pay a premium on a house, you’re paying to replace the entire structure in the event of a fire or other hazard. Condo insurance protects your unit and any improvements, as well as the contents of your home. Other factors that affect your home's premium include location, value, age, neighbourhood crime rates, and build quality.

How can you compare home insurance?

Do your research by reading reviews left by other insurance providers' clients, exploring the rates available, and testing their customer service by calling in to speak with an agent or sending them an email with all of your questions. There are so many options in Canada that will suit your specific needs and location. Bundling products (ex: home and auto insurance) and shopping around before your closing date can help you get a better quote.

Is home insurance required for a mortgage?

In Ontario, home, condo and tenant insurance are not mandatory by law. However, almost every bank and mortgage lender will request it. Home insurance protects you from unforeseeable events that could disrupt your income or ability to repay the mortgage.

Don't forget; Lenders don't just give you a mortgage because they like your credit score and income level. They will assess whether they can sell your home in the event of a foreclosure. Home insurance also includes coverage for the mortgage lender indirectly, as you are assuring the asset they're lending you money on. In the case of default, they'd want a marketable property to sell and earn back their outstanding loan.

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What does mortgage insurance cover?

Whenever a borrower purchases a property with less than 20% down payment in Canada, they must get default insurance from one of the three main mortgage insurers; CMHC, Sagen (formerly Genworth) or Canada Guarantee. These insurers protect the Lender if a borrower no longer makes their mortgage payments or goes into default; they’ll step in to cover those payments and costs associated with foreclosing the property. The critical thing to note here is that mortgage insurance protects the Lender, not you (unlike home insurance).

You can buy a property with as little as a 5% down payment, but you will incur a higher premium. The premium is calculated as a percentage of the total mortgage amount. If your down payment is 20% or more, you won’t need this insurance coverage. The premium can cost anywhere from 2.8% to 4% and is based on the down payment amount. The premium is added to your total mortgage amount, so you won’t need to pay it upfront.

Is mortgage insurance required?

While you technically can buy mortgage insurance regardless of your down payment amount (although we strongly advise against this), the premium is not mandatory unless your down payment is less than 20% of the purchase price. It's entirely up to you; if you live in the GTA and are a first-time homebuyer, you will most likely need mortgage insurance due to high property values.

Understanding the differences between mortgage and home insurance

Home insurance protects you while mortgage insurance protects the lender. While mortgage insurance is only required if your down payment is less than 20%, home insurance is almost always require, unless you own your home outright. The payment terms are also different between the two types of insurance — you’ll pay your mortgage insurance along with your mortgage, while home insurance is paid every month or year. 

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