Q: My daughter and her husband did not earn enough, so my wife and I decided that we would help them by putting her name on the mortgage for the purchase of a new-build condo in Hamilton, Ontario. We opted to go with RBC and the mortgage was approved at a rate of 2.65%. In order to get the mortgage, however, my wife, who is currently 64-years-old, my daughter and I had to agree to purchase mortgage life insurance. We pay around $315 per month each, for a total monthly payment of $945. This is in addition to the monthly mortgage payment of $1,485. My question is whether or not this mortgage life insurance is mandatory or can I cancel it?
A: Masood, first, let me congratulate you and your family. Getting into the housing market can be tough for younger adults and it’s nice to know that you were willing to help your daughter and her husband out. Plus, Hamilton, Ontario is a growing city and it appears poised for growth over the next decade.
Now, in relation to your question if the mortgage life insurance is mandatory. The short, quick answer is: Yes.
Because you signed a contract—that bulk of mortgage documents you signed—you are now bound by the terms of the contract. As part of this contract, your lender requires you, your daughter and your wife to hold life insurance. Cancel it completely and you could be held in breach of contract and the lender could demand full repayment of the mortgage loan.
But short, quick answers don’t tell the whole story. Just because you are required to hold mortgage life insurance does not mean you need to pay your lender for this coverage.
Another, potentially cheaper option is to talk to an independent insurance broker—a professional that doesn’t work for any one particular company but represents your interests by shopping your requirements at a variety of insurance companies. A broker can also recommend strategies to help save you money, better still, they can get you more comprehensive coverage.
Almost all lender-sponsored mortgage life insurance policies have a declining pay-out. For example, you may start out paying premiums for $500,000 worth of coverage, but over time, as you pay down your mortgage, you end up paying the same premium for less coverage. Opt for a term life insurance policy and you could drop your monthly premiums and maintain your payout rate. For instance, a broker could set your wife up with a 10-year term life policy with Empire Life (this company only works with brokers) which drops her monthly insurance premiums to just under $235 per month (assuming good health, etc.). Assuming your daughter is 34-years-old and her premiums would drop to just under $30 per month. Make these change and you could save almost $500 per month in insurance premiums. Better coverage for less by using an independent insurance broker. That’s a win-win if you ask me.
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