While it’s exciting to pick out furniture and paint colours for your new home, buying a home also means you are also left with difficult decisions to make such as which insurance provider to choose, and what insurance you need. Before you reach that step, it’s important to understand the different types of home insurance you need to ensure you are protected as a homeowner.
Mortgage Loan Insurance
If your down payment is less than 20% of the purchase price of your home, you will need mortgage loan insurance, also known as high-ratio mortgage insurance. It protects your lender — not you — in case you default on your mortgage. Premiums are calculated as a percentage of the amount you put down, changing at the 5%, 10% and 15% thresholds but there is no break for anything in between. Premiums range from 0.5% to 3% and increase if you are self-employed.
This type of insurance is mandatory for high-ratio mortgages, and is only offered through two carriers: CMHC and Genworth Financial.
Title insurance is yet another type of insurance you will require. Your lawyer will advise you of this type of protection, which insures you against any defects of title to the property. For example, if the previous owners undertook major renovations of the property without proper permits, you would be protected against any costs required to bring the house up to code. Typically, this one-time premium costs less than $500.
Home insurance protects the owners of potential risks that could occur, such as fire, damages or theft. It also covers liability for anything damaging that can occur on your property such as injury or damage of belongings. Insurance is required by mortgage companies in order to mitigate risk for the property. The cost of home insurance will vary, but takes into consideration:
- Size of the home
- Age and condition of wiring, plumbing, heating systems, etc.
- Property size
- Local weather conditions
Insurers also check your financial past. If you’ve had credit or similar problems, insurance costs rise. Like lenders, insurers will charge you for this credit check. Typically, your home insurance should cost between $400 – $1,200+ annually, but will vary depending on the factors listed above. In Canada homeowners pay on average $840 annually for home insurance
Do you have unanswered questions about the different type of insurance you need to protect you and your new home? Reach out to your RE/MAX Realtor who will be able to answer all your questions, and put you in touch with an Insurance Provider they recommend.