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.
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.
|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)
|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|
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 email@example.com if you have any questions!