The Real Cost of Mortgage Insurance

Giving you real-life examples for choosing the right mortgage coverage.
The Real Cost of Mortgage Insurance | CM Connect Blog

The Real Cost of Mortgage Insurance

When deciding on coverage for your mortgage, make sure to consider what you are being asked to pay and how much coverage you will actually be provided with. If you're looking for more information on what exactly mortgage insurance is, read our blog post here. Now, it's time to compare and consider the costs, using real-life examples. 
Consider this scenario...


A couple in their forties purchase a home.  Let’s call them John and Jane. Their mortgage amount is $225,000.  Mortgage insurance through banks is based on single or joint coverage and age, at  a rate of per $1000 of the mortgage.


Upon purchasing their home, John and Jane were excited to receive a great interest rate of 3%.  They decided that because of the low interest rate, they could easily afford the monthly payments on a 30 year amortized mortgage.  

The Real Cost of Mortgage Insurance


Typically a mortgage will renew every 5 years.  At this time, you have to requalify, which may increase or decrease your interest rate, based on the current economy. Additionally, if you have purchased life insurance / mortgage insurance through the bank – you have to requalify for that as well, and your new rate will be based on age at time of application and mortgage amount.


We’ve put together a timeline with actual cost comparisons to show you exactly what John & Jane will be paying for coverage on their mortgage.


FACTS Mortgage Insurance with Bank (providing only balance of mortgage) Their own Term T-20 Policy (providing $225,000 for each of them)
YEAR 1 - 5
$225,000 start coverage (rate is determined by original amount ) $0.34 per $1000 = $76.50 / month Term 20 $225,000 EACH = $57.85 a month
YEAR 5 COMPLETE - RENEW FOR NEXT 5 YEARS
Based on interest rate, mortgage balance should be around $181,420. John and Jane are now 45. New rate of $0.49 per $1000 = $88.90 / month (This coverage will only pay out the balance of the mortgage at time of death for ONE of them) Rate remains the same $57.85 / month (Still have $225,000 coverage for BOTH of them.)
10 YEARS ALREADY!
John and Jane are now 50 – last renewal they were able to maintain that 3% interest rate and now their balance they need to renew is $130,049. New rate of $0.68 per $1000, but mortgage balance has down so new rate is $88.43 / month The rate has only gone down because they have less coverage now. Rate remains the same $57.85 / month (Still have $225,000 coverage for BOTH of them.)
RENEWAL TIME AGAIN
John and Jane are now 55 and they only have $83,075 left on their mortgage. HURRAY! New joint rate per $1000 is increasing to $0.88, but coverage is for the balance owing ONLY. New premium is $73.04 / month Rate remains the same $57.85 / month (Still have $225,000 coverage for BOTH of them.)

* Actual cost per $1000 from a large bank (rates are available on their websites)

In this scenario, THANKFULLY John nor Jane had any health issues that would have prevented them from continuing to qualify every 5 years for their mortgage and mortgage insurance renewal.


The Real Cost of Mortgage Insurance

Now let's look at the ACTUAL COST when you compare these different types of coverage:


Term of Mortgage Mortgage Insurance with Bank Their Own Term 20 with Insurance Agent
1st 5-year term $4,590 $3,471
2nd 5-year term $5,334 $3,471
3rd 5-year term $5,305 $3,471
4th 5-year term $4,382 $3,471
TOTAL PAID OVER 20 YEARS $19,611 $13,884
As you can see, owning your own term life policy also provides you options, such as exchanging to a permanent product or increasing coverage. 
In the end, John and Jane would have saved $5,727.00 in premiums and had superior coverage that they controlled. 


At Crystal Metz Insurance Agency, we believe in educating our clients, enabling them to make informed decisions for all of their insurance needs. Please call us at 403-526-1345 or email us at admin@medhatinsurance.com if you have any questions!