While a Red Deer mortgage broker can help you find an affordable mortgage with the terms you want, insurance is a whole other matter. Complicating the issue is how many types of insurance are available to new home owners, some legally required, some optional but beneficial. Here is an overview of the different types of insurance new home owners could get.
Mortgage Default Insurance
This isn’t really insurance for the homeowner’s benefit. Instead, it is insurance the home owner has to pay for in case they default on their mortgage. It is mandated by many lenders when you don’t put enough money down on the property. You have to pay for mortgage default insurance if you put less than 20% down on the property, you may have heard of CMHC or Genworth these are mortgage default insurers.
A Red Deer mortgage lender requires you to pay these premiums they pay them upfront and add them to your mortgage. The benefit to the home owner is lower interest rates and less down payment required, since the lenders don’t have to charge everyone higher interest rates to offset the true risk of losing money on foreclosures. If you default on a mortgage the insurer will pay the lender out in full and the insurer will take over the legal proceedings and costs to get the home sold.
Mortgage Life and Disability Insurance
Mortgage life insurance pays off the mortgage in the event of your death. This insurance may not be necessary if you already have a sizable, separate life insurance policy. If you’re not going to be able to get life insurance due to pre-existing health conditions, you may only be able to get mortgage life insurance to provide some measure of protection for your family such as disability insurance.
Mortgage disability insurance can pay your mortgage for a set period of time in case of disability. The typical mortgage disability insurance policy covers mortgage payments up to $10,000 a month for two years plus property tax payments. This type of insurance may not be needed if you have good savings or a good disability policy with your work.
Home Warranty Insurance
Home warranty insurance pays for a variety of repairs in your new home. These insurance policies typically cover HVAC (heating, ventilation and air conditioning) repairs, electrical issues, and plumbing problems. There are caveats to these policies. It may cover a dead air conditioner compressor, but the air filters are your responsibility. They rarely cover window ACs. Most home warranties won’t cover fireplaces and wood stoves.
These policies generally require proper maintenance of the systems by a licensed professional, so if you try to replace a radiator yourself, you may have voided the warranty on the furnace. While it may cover a broken pipe, it won’t cover that same failure if you didn’t keep the heat on while on vacation. The insurance is meant to cover unexpected break downs not wear and tear.
They may fix a leaking toilet, but they aren’t responsible for plumbing lines broken by something your child flushed down the toilet. Well water systems and septic tanks are typically outside of the average home warranty.
They may pay for correcting wiring shorts or a bad breaker box, but if there’s a serious underlying issue the home inspector missed, you may have to pursue them for the cost to repair the bad wiring. They will generally let you select from a list of authorized repair people, but they rarely send you the money for DIY repairs. You have to pay the first $50 in a claim the remaining if approved will cover up to $10,000 annually.
Home Appliance Insurance
Home appliance insurance can be seen as a more limited version of home warranty insurance. These insurance policies only cover the repairs to major, critical appliances like the oven, dishwasher, refrigerator and microwave. It won’t cover portable appliances like room dehumidifiers, window air conditioners, or air filters. Nor will it cover luxury appliances like wine chillers or portable spas. Not all policies cover washing machines and dryers.
This type of insurance is not worth it if you’re buying a home with all new appliances. Nor is it necessary if you have a modest savings account to pay for these repairs yourself.