Mortgage insurance pitfalls leave home-buyers vulnerable

(NC)—Nothing is more exciting or stressful than purchasing your first home. And you've been through the usual check list:

• Can you actually afford a house? Although interest rates are low now, it's important to remember that they may increase in the future.

• Do you have enough for a down payment? Experts tend to advise prospective buyers to make a down payment of up to 20 per cent of the house's value.

• Fixed or variable mortgage? A fixed interest rate offers stability and predictability, but you lose out on lower interest rates should they become available. The payments with variable interest rates also remain constant but there is the risk that interest rates may go up.

It's been an emotional rollercoaster and now it's all yours. And thanks to your thoughtful banker, you've had decided to buy mortgage insurance, which will protect your family should anything happen to you. It was an easy process involving only a short medical questionnaire and just like that, the policy was set. But, are you sure you're covered? We asked William Vancoughnett, a Burnaby-based managing director with Desjardins Financial Security Independent Network, for his advice on how new home-owners can ensure they're protected from the time the contract is signed.

"Unfortunately, many home-owners are caught unaware when they submit a mortgage insurance claim and find that they've been denied," says Vancoughnett. "The problem is that many bankers fail to determine if the client is actually qualified at the time of the application. It tends to be decided after the fact through a process called post-claim underwriting."

Not usually. Typically when you apply for a life insurance through your broker, your application will be properly underwritten. The purpose is to establish the level of risk the insurance company is willing to accept in return for providing you with the protection you're seeking. That way, when a claim is submitted there is no longer a need to re-evaluate who you are.

The best way to ensure that you have purchased solid mortgage insurance is to obtain it from a licensed insurance representative. All is not lost however if you purchased your policy from your banker. A short meeting with an insurance expert can ensure that you obtain the right coverage.

Some other advantages of working with an insurance representative are:

• The policy travels with you even if you change mortgage lenders

• The coverage amount does not reduce as your mortgage is paid off

• You have the right to name your beneficiary, whereas, the bank becomes the beneficiary in bank-sold policies

To learn more about mortgage insurance, speak with your insurance provider. Or for immediate answers, visit the Desjardins Financial Security Independent Network website at www.dfsin.ca.

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