Real Estate Talk:
Mortgage VS Life Insurance
With the spring market on hold let’s look at the mortgage insurance issue
By Joseph Marovitch
I was going to write about preparation for the spring market but, like everything else in the crazy pandemic, change takes place fast and furious. According to the Quebec Professional Association of Real Estate Brokers (QPAREB), April and May are expected to be the slowest, if not halted, real estate market in Quebec history. The city of Montreal will remain closed, except for essential services, until the end of May and perhaps longer according to our government. Therefore, there will not be much of a spring market to prepare for but we will discuss preparing for the fall market at a later date.
Recently, I had a client who purchased a condo and it is the client’s first residential property purchase. The client was going to take advantage of the Government’s first-time Home Buyers’ Plan which allows a first-time home buyer to put down as little as 5%. However, the government plan requires that the buyer purchase Canadian Mortgage and Housing Corporation (CMHC) mortgage insurance. To avoid purchasing the insurance, a buyer must put down 20% or more, which means a buyer cannot take advantage of the first-time home buyers’ plan.
The bank will insist you purchase their insurance if you are putting down less than 20%, however, you must read the itty bitty small print in the long document which states the many conditions under which there is no payout.
Generally, mortgage insurance is a very good device to have in the event the buyer becomes sick and cannot make their mortgage payments or if the buyer should pass away. If the buyer has children or a spouse that does not have enough income to cover expenses, one would think the insurance is invaluable.
The issue with insurance from the bank or CMHC is that:
1. The mortgage protection payout shrinks as the mortgage decreases.
2. The buyer may find that when it is time for the payout, the insured is not eligible.
The bank will insist you purchase their insurance if you are putting down less than 20%, however, you must read the itty bitty small print in the long document which states the many conditions under which there is no payout.
3. The premium may increase each time the insured renews at the end of a 2, 3, 4- or 5-year term.
4. The bank pockets the payout and not you or your heirs.
Should you pay off the mortgage earlier than the 25- or 30-year amortization period and therefore the insurance policy as well, all the premiums paid remain with the bank and beneficiaries receive nothing.
An alternative to mortgage insurance from the bank, that covers disability and death, is life and disability insurance from a major known insurance company. The premiums for life and disability insurance remain constant through the amortization period unlike at a bank where the premiums increase each time you renew your interest rate. The payout is assured as the terms are clearly laid out prior to signing anything.
‘An alternative to mortgage insurance from the bank, that covers disability and death, is life and disability insurance from a major known insurance company.’
Once the policy is completely paid up, your beneficiaries receive the full payout whether you sold the house or not and after your mortgage is paid up. Other advantages of life insurance are that you can borrow against it or cash it in. The strings the bank applies to mortgage insurance the buyer does not have with life insurance. Finally, life insurance tends to be less expensive than mortgage insurance.
For more information call your insurance broker. If you do not have an insurance broker, contact me and I can refer a few.
Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.
Next article: Business in the new normal
State of the market
The market is quiet. The government is keeping Montreal in lockdown at least until the end of May and possibly longer. As Dr. Fauci, the director of the National institute of allergy and infectious disease in the United States said, “the virus determines the timeline, not us.” However, demand is still there and growing. Buyers are searching online and calling for information on property every day. Buyers are preparing for the future.
The situation is like the horse at the gate waiting for the bell. When the bell rings, we can expect a surge in the suppressed real estate market to burst through the gates. Now is the time to search for property on-line, call real estate brokers, contrast and compare property and prices.
‘The situation is like the horse at the gate waiting for the bell. When the bell rings, we can expect a surge in the suppressed real estate market to burst through the gates.’
It is also a very good time to call a mortgage broker and lock in an interest rate for the next three months. If the pandemic has not receded in three months, call the mortgage broker again and lock in an interest rate for another three months. Rates have never been lower so take advantage of the opportunity. During adversity, one must always search for the bright side, hope and a reason to move forward.
SPECIAL NOTE
The COVID-19 virus is very nasty and highly contagious. For the aged or those who have auto-immune deficiencies and become seriously infected, the result is either permanent degrees of lung damage or death. For those who are infected but have mild or no symptoms, they are still carriers and can infect those around them.
Have a great day, make the best of the situation, please stay safe and take precautions.
Image: Adrianna Calvo from Pexels
Other articles by Joseph Marovitch
Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible for, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or josephmarovitch@gmail.com
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