All homeowners with a mortgage are required by their lender to have home insurance. And some are required to have mortgage insurance, too. So, what’s the difference? Let’s get into it.
What is mortgage insurance?
Mortgage insurance is only required when purchasing a home with a down payment of less than 20% of the purchase price. So, if your down payment is more than 20%, you don’t have to worry about it.
Mortgage insurance is purchased by the homebuyer as a safeguard to the lender, from one of Canada’s three mortgage insurers: CMHC, Sagen (formerly known as Genworth), or Canada Guarantee.
If mortgage insurance is needed, your mortgage broker will work with your lender to set everything up. Your mortgage premium is then added to your total mortgage amount. This premium can cost anywhere between 2.8% to 4% and is based on the size of your down payment.
Your mortgage insurance policy will protect your lender (like your bank) in case your mortgage goes into default — they’ll step in to cover those costs, as well as any costs associated with foreclosing the property.
What is home insurance?
Home insurance protects the homeowner in case something unexpected or accidental happens to their property, home, or belongings.
In Ontario, home insurance is not mandatory by law, but virtually every bank and mortgage lender will request it before you close on your purchase.
Mortgage insurance vs. home insurance
Mortgage insurance protects the lender, not the borrower. It’s quite different from home insurance, which covers the homeowner, but the two can be confused as similar products.