Do you want a Mortgage Life Insurance?

What I Learned This Week


 

Last week, I made a post about Mortgages and it was pretty popular. I’d thought I would follow the trend and share what I learned this week (I hope you’ll get something out of it). Today’s going to be more focused on Canada because I’m Canadian (vive le Canada~). However, it might be translatable over in the USA (don’t quote me on that).

Today, we talk about Life Insurance. More specifically, Mortgage Life Insurance. I know what you’re thinking, “Donald, f*ck off. That stuff’s a scam, you’re a bloody idiot for considering it.” And you know, I’m totally cool with that, a lot of people think it. Hell, I use to be that same person until I decided to go on a route of “diving deeper into everything I’m curious about.” Because really, I don’t lose anything when I don’t give somebody my money, but I do gain something by researching a little bit more than your typical, biased joe (spoiler alert: MLI is a pretty poor decision).


 

Mortgage Life Insurance

Basically, it is a financial product whose value depreciates over time as you pay more premium into it. Here’s an example, Joe borrows $600k mortgage for 30 years and buys Mortgage Life Insurance. He dies that same year, that insurance pays off the mortgage (all $600k). However, let’s say he dies 15 years later and half the house is paid off, the insurance will then pay off $300k (when you qualify for $600k). Now, let’s say he dies 27 years from when he first took out the mortgage and has $50k left on the mortgage, how much does the insurance pay off? You guessed it, $50k (when you qualify for $600k). The horrible part is throughout the years, you’ve been paying a monthly premium for the insurance! So you are paying for a depreciating financial product!

There are better options, a traditional or term life insurance product typically keeps face value as you pay the monthly premiums (that means if it pays out $600k, you will get that amount no matter when you die). It’s just that as you get older, you become more risky and you pay a higher premium.

There has been much controversy surrounding mortgage life insurance. It really does benefit the lender only and is a really bad idea for the buyer, but sometimes it might be your only choice to help take care of the family in case you go early (how morbid). Also, if you are not healthy and do not pass the tests from term life insurance, it might be your only option (another reason to stay active and healthy).

At any rate, you guys know what to do if the banks try to sell you this product. As Canadians, we will politely decline and then curse at them under our breath. If you’re an expat, then act according to your culture. It’d be quite the show.

I hope you learned something today and as always, there’s two videos that I’d like to share below to further explain what Mortgage Life Insurance really is.


All About Mortgages

What’s There to Know?


Well, it has certainly been awhile. Certainly, I have failed in keeping up with my posts. However, there was a reason for that. I have found myself a job as a Software Engineer at a startup called Time.ly in Vancouver, BC. It’s certainly nice to be able to make a living again, but I am starting at a pretty rough place because the startup is so very disorganized.

At this moment, I feel like passing out, but I will do that after I finish this blog post about what I learned over the time I was absent. A friend of mine recently bought a condo and was raving about all these terms related to buying a place that was above and over me. I started researching about the process of buying a place and more specifically, mortgages.

I learned about credit scores, downpayments, assets, income, etc. and I even made a video that you can find here. It explains what a mortgage is and what you need to qualify for it. It’s very basic, so if you already know a lot about home purchases, you may want to skip it.

I’m from Canada and I really focused on Canada in that video. In it, I explained a little bit about CHMC or Canadian Mortgage and Housing Corporate – or Mortgage Insurance. Essentially, you pay a premium IF your downpayment is less than 20%.

So, let’s say that Jeff purchases a house with a 10% downpayment. The other 90% is from a mortgage. To protect the lenders, borrowers are forced to buy this mortgage insurance. The premium that they pay is based on their situation and is calculated by lenders. So basically, in a monthly mortgage payment you will pay for the interest of the mortgage + insurance premium + principle. If you had a downpayment of 20%, you only pay mortgage interest + principle. In this post, I really wanted to point out the insurance premium you’d pay if your downpayment is less than 20%. I feel a lot of people don’t know how much they lose to this insurance premium (or even knows about it). So, I wanted to bring it to light.

Of course, the video I made explains it in finer details, so make sure you watch it. Also, refer to the CHMC reference page to learn more about it. It is Canadian, but I believe USA also have the same kind of process to protect lenders. Sucks for us buying houses, but now you know what to expect.

(Actually, I made it easy for you to find the video *wink*)

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Yours truly,

Donald