In the world of Canadian real estate, one term that’s been making waves lately is “mortgage insurance.” It’s a topic that has been cropping up in my conversations with clients more frequently than ever before – Is mortgage insurance worth the money?
So, I decided to roll up my sleeves and dive deep into this subject, seeking the guidance of an insurance expert and friend, Brian Laundry. Together, we’re here to unravel the mysteries surrounding mortgage insurance and answer the burning question: Is mortgage insurance worth your money? If you’re a homeowner or looking to become one in Canada, you’ll definitely want to stick around for this insightful exploration.
Video Transcript: Is mortgage insurance worth your money?
George:
I’ve more recently been receiving questions or noticed as I’m speaking with clients that they’re acquiring something called mortgage insurance. And I’ve asked a colleague, friend, business partner, fellow, real estate- investor, etcetera, Brian Laundry to join us. And let’s ask an insurance expert what their thoughts are with respect to this mortgage insurance.
I’m George Dube, saving the world from tax, one bow tie at a time.
And Brian, welcome. Thank you for taking some time with us today.
Brian:
Yeah, thanks for having me back. This is a great topic.
Mortgage insurance – Two initial problems
George:
And so we, we obviously had a little bit of a discussion before because, and I think I was texting you as I was having a meeting with a client relatively recently and noticed, hey wait a minute. Hadn’t seen a lot of, but I’m starting to notice more so, people getting into mortgage insurance.
And so admittedly my information’s a little bit dated or memories a little bit dated too or some combination thereof. And I just said, wait a minute, there’s kind of two things that I think of with mortgage insurance and one is I understand it, I may be, really, it’s not an insurance, perhaps it’s a it’s a starting point, but I may not be covered if I actually got hit by that proverbial bus and then, being an accounting nerd, as I understand it.
If I start off with a mortgage of X amount of dollars and I’m paying principal off as time progresses, my insurance cost, as I understand it didn’t decrease if I’m paying that through the financial institution. So I’m getting a smaller and smaller asset, but I’m paying a larger and larger percentage for that. So it doesn’t sound necessarily like the greatest of deals and talk.
Mortgage insurance: Why it’s worse that you think
Brian:
It’s worse than that.
So maybe I’ll start this story by telling you the ending first. It’s known as creditor insurance. It is easily the worst quality product in the industry when it pertains to any sorts of insurance. And I will go through all the reasons why. You’ve hit two of them and there’s several more.
Expensive and pricing continues going up
I will say this emphatically and make this video real short. If you have creditor insurance through your lending institution, you should have a phone call because it is expensive relative to what’s available. First thing. Second, your pricing goes up in five-year age bands, so not only is it expensive, it’s going to get worse. Now, your mortgage presumably is going to go down, but your price keeps going up, so that’s not a really good deal.
Beneficiaries are the bank
The beneficiary of these policies is the bank. So the bank has convinced you to pay an exorbitantly high premium of which is very profitable, to hedge their risk. Right? So if something happens to you and the debt is on their books, they get their money back.
Not transferable
Let’s go down the rabbit hole some more. We deal with a lot of real estate investors. You and I are both investors. We both deal with banks. These creditor insurance policies are not transferable or portable. So meaning maybe you’re stuck at a bank and you can’t really move your mortgage because your insurability changed and you’re terrified to change lending institutions because you lose what you already have.
Not underwritten until you die – danger of denial
It gets worse.
The life insurance industry, the high quality industry that I’m in, you must provide medical evidence. You have to speak to a nurse. There’s a process of which you acquire high quality products by going through a high quality process. Creditor insurance. You’ve been asked two questions by a non-licensed non- qualified mortgage broker or a bank employee. Of which, if you answer those questions and you get the coverage. They don’t, in fact, underwrite. They don’t go through the actual questions, the real work, until you’re dead.
So now you’re a spouse. Your spouse passed away. You’re thinking at least the mortgage is paid, and they say no, we would have never insured you anyway. You have all those things wrong with you. We we’re going to deny the claim. There’s a CBC Marketplace episode from about 10 years ago that talks about this.
What to do if you’re not sure you have mortgage insurance
I will emphatically say to anybody watching this video, please, if you have it, speak to an insurance advisor. Talk about your options. Because it’s not OK and what really bothers me the most, and as you can tell, it’s pulling up some interesting feelings out of me.
The Bank Act, which is the rules governing financial institutions in Canada, is very clear that life insurance and insurance products cannot be sold at the bank. That’s why nobody sells this stuff at the bank. It’s against the rules. I’m not sure if you saw, remember RBC, there was new buildings called RBC Insurance that were completely separate. That’s why they aren’t allowed to sell it at the at the branch level of the bank. It’s in the rulebook.
Which begs the question, what exactly is it are they selling? They’re selling creditor insurance because they are allowed to insure their loans. It is a very high margin business for financial institutions.
There are about, and I checked this on ChatGPT so you can write in “mortgage insurance, any good in Canada?”, you’ll get these same answers. What was interesting is there’s about 9.8 million households in Canada, 40% have a mortgage. So what about 4 million people have a mortgage?
Ask yourself how many people are requalifying or refinancing or buying a new home who are being legally required by the institutions to be offered creditor insurance. A mortgage broker can’t execute your mortgage unless they go through the thing saying you must sign off that you want it, yes or no. So every single transaction legally needs to be offered to a buying consumer base. They don’t know what they’re buying and they’re being sold by a non expert on a terrible product that’s highly, highly profitable for banks.
Please don’t do it.
Talk to an insurance advisor and get yourself the appropriate protection.
Life insurance – how it is worth more than mortgage insurance
George:
So I think the summary is that it’s not to say that life insurance is bad. If we’re getting mortgages that might be a great idea potentially.
Brian:
Life insurance isn’t the problem. Creditor insurance, creditor insurance, insurance offered through your mortgage broker or financial institutions. Any kind of creditor insurance is poor quality and the best interest of the banks.
Look, it’s better than having nothing, I suppose. But it’s not a whole lot better.
George:
I would certainly like to think that my family’s taken care of if that proverbial bus is coming for me, and I don’t want to be rolling over in the grave to find out there was really nothing there in the first place.
Mortgage insurance: An example of how expensive it is
Brian:
I recently met one of your clients who was spending $780 a month on mortgage insurance. They were my age. They weren’t old or anything like that. $780 a month automatically being taken out. In addition to their accelerated mortgage payments and their property taxes, like it’s just kind of buried in there, right? We were able to do much better planning for them at a fraction of the price. We were able to get them covered for less than $200.00 a month. The numbers are astounding how different they can be.
So yes, let’s hope people stay away from the creditor stuff.
George:
Awesome. Thanks, Brian, for taking the time again for us.
And again, can’t emphasize enough if you’re watching this. One it sounds like it’s not enough if you know you have creditor insurance, to call Brian or another advisor. If you don’t know what’s in your payments, maybe it’s time to take a quick look and let’s do a check up and just make sure. You’re actually spending money that should be spent in a manner that’s appropriate.
Brian:
Yeah, I will say Scotiabank as an example, has a little thing on your online banking that says is the mortgage insured? Yes, no. So I’m not sure about other institutions, but if you’ve checked, yes, and you might not even remember doing it, it’s time for a review.
George:
Awesome. And Brian, how should people get a hold of you?
Brian:
You can reach me at brian@brianlaundry.ca. You can reach anybody on my team by going to my website, brianlaundry.ca and reach out to anybody on my team. We’re all here to help and we’d be happy to to have a chat with you.
George:
Awesome. I thank you. And as a reminder, people, there’s a host of other videos we have here including Brian and I talking about other insurance planning that is an absolute must see.
And please do reach out and look forward to sharing future videos with you. Thank you. Bye for now.
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