Mortgage default insurance
Mortgage default insurance is an insurance policy that protects lenders like Bridgewater Bank against loss caused by payment default by a borrower. A mortgage is generally considered to be in default if a payment is not made on the scheduled due date. If a property is sold as the result of a mortgage default, but the sale does not generate enough money to pay the outstanding balance and all associated costs, fees and interest, the insurer will pay the shortfall to the bank and will then have the right to enforce against each borrower personally for the deficiency.
More information on mortgage default insurance
In Canada, Bridgewater Bank and other lenders are required to obtain mortgage default insurance when a borrower provides a down payment of less than 20% of the purchase price or appraised value in the case of refinancing. Mortgages that fall into this category are called ‘High Ratio Mortgages’.
Bridgewater Bank obtains mortgage default insurance from the following three insurance companies:
• Canada Mortgage and Housing Corporation (CMHC)
• Sagen (previously Genworth Financial Canada)
• Canada Guaranty
Paying for coverage
Insurance companies charge an insurance premium for mortgage default insurance. The premium is charged to the mortgage borrower (customer) by the individual lender (bank). The premium may be paid up front in a lump sum or blended in with the mortgage loan payments. Mortgage premium calculations are available on the individual insurer’s website for reference or by contacting Bridgewater Bank at 1.866.243.4301 or at email@example.com.
Some factors that may be considered by the mortgage default insurer when calculating the mortgage default insurance premium:
Property value Lesser of purchase price or property value, as provided by you. Loan-to-value ratio The higher the mortgage loan amount is in relation to the property value, the higher the premium rate. Amortization period If the amortization period or the mortgage is more than 25 years when the mortgage default insurance is obtained, the premium rate may be higher. Premium rate Premiums vary depending on amortization period of your mortgage and the loan-to-value ratio. Rates can be found on each insurer’s website. Self-employed The premium rate may be higher if the borrower is self-employed.
Property value $300,000 Down payment 15% = $45,000 Mortgage loan $300,000 – $45,000 = 255,000 Amortization 25 years Loan-to-value ratio $255,000 ÷ $300,000 = 85% Premium rate 1.75 % Mortgage default insurance premium $255,000 x 1.75% = $4,462.50
Cost of mortgage default insurance
Bridgewater Bank charges borrowers the actual cost of the mortgage default insurance and any applicable taxes. The actual cost is equal to the amount incurred by the bank for the mortgage insurance (insurance premium). It does not include any payments or benefits not related to the mortgage default insurance.
Bridgewater Bank and its employees/representatives do not receive, directly or indirectly, from any of the insurers who provide our mortgage default insurance, any payments or benefits. This includes rebates, discounts, fees or commissions for marketing, advertising or promotional activities related to the mortgage default insurance.
Mortgage life and disability insurance
Choosing to buy a home may be the single most crucial decision you will ever make. It will serve as a stable and safe place to raise your family as well as an important long term asset. However, what would happen if you were to suffer a serious illness, accidental injury or death? Would your family be able to continue to make mortgage payments in spite of the resulting temporary or even permanent loss of income? It makes sense to do all you can to protect yourself and your loved ones from the financial hardship that could result from unforeseen tragedies.
More information on mortgage life and disability insurance
Help safeguard your family’s security
Bridgewater Bank is pleased to make available mortgage life insurance and mortgage disability insurance to eligible borrowers at competitive rates through the Manulife Credit Security Plan™ (CSP)1 (available on mortgages up to $1,000,000). This coverage is specifically designed to fit your mortgage. You’ll have peace of mind knowing that it’s protected during times of crisis. You can apply for mortgage life insurance, mortgage disability insurance, or you can apply for both types of insurance for maximum protection.
This insurance is optional and your coverage can start immediately. Once your mortgage is funded, you can be covered while your application is being reviewed. This insurance can be added and may be offered by Bridgewater Bank and Manulife at any time during your mortgage term and you can cancel at any time. If you decide to cancel it during the first 60 days, the premiums you have paid will be refunded. That means you can have coverage in place while you review your financial plan in greater detail.
To learn more about the Manulife Credit Security Plan, contact us.
1 The Manulife Credit Security Plan is an insurance program designed to provide life insurance and disability protection to the customers of Bridgewater Bank. The Plan is underwritten by The Manufacturers Life Insurance Company (the “Insurer”) and administered and managed by Manulife and its appointed agents. Defined terms and complete details of all benefits, exclusions and limitations that may apply are included in the Certificate of Insurance and accompanying documentation.