Banks sell mortgage insurance, but independent experts say you shouldn’t buy it

Personal finance experts are a pretty soft-spoken bunch. It isn’t often that they say they would “never ever” advise buying a certain financial product.

But that is exactly what they generally say when asked about mortgage protection insurance, according to Anne Marie Thomas of InsuranceHotline.com, an insurance comparisons site.

Mortgage protection insurance isn’t the mortgage insurance most Canadians are familiar with, the one you need to buy, generally from the Canada Mortgage and Housing Corp. (CMHC), when your down payment is less than 20 per cent of the value of your home.

Unlike the better-known mortgage insurance, which protects lenders if homeowners default, mortgage protection insurance is, essentially, a type of life insurance. It covers your mortgage debt if you die or become disabled.

Banks generally try to sell homeowners this type of insurance when they sign up for a new mortgage. Insurance premiums are then seamlessly added to their monthly mortgage payments.

So, what’s not to like about that?

A lot, according to Thomas:

1. The payout from mortgage protection insurance shrinks with your mortgage

These kinds of policies only cover your outstanding debt, meaning the payout gets smaller and smaller as you pay off your mortgage. Insurance premiums, on the other hand, stay the same through the insurance term.

2. You may find out when you file a claim that you aren’t eligible for coverage

Mortgage insurance policies are “typically underwritten after the fact,” noted Thomas. This means that the insurance company will only take a close look at your case once you file a claim. And it may very well find that something in your particular situation violates the insurance contract, which would leave your family without coverage just when they need it most.

If you purchased mortgage protection insurance, comb through your policy carefully to make sure there’s nothing that could potentially exclude you for coverage, advised Thomas.

3. Your might get saddled with higher premiums when you renew your policy

With mortgage protection insurance, you’ll need to renew your policy at the end of your mortgage term, said Thomas.

Your new premium will be based on your — now smaller — outstanding mortgage balance, but that doesn’t mean you’ll be paying less. Because you’re a bit older, your premium won’t necessarily go down — in fact, it may go up, Thomas told Global News.

4. Your bank, not your family, pockets the payout

Assuming the claim goes through, mortgage insurance guarantees your family won’t have to worry about mortgage payments if you die or become disabled.

In case of death, your beneficiaries can counts on a lump-sum payout that will take care of the outstanding balance, according to Jason Heath of Objective Financial Partners, a fee-only financial planning firm. In case of disability, the policy will generally cover your monthly mortgage payments until the debt is extinguished, he added.

But does it make sense to use the money to pay off the mortgage?

Not necessarily, said Heath. Perhaps your survivors could have easily eliminated mortgage by selling the house. Or they might have preferred to use the money for other purposes, while keeping up with your mortgage payments.

Mortgage protection insurance means any payout will flow out to your mortgage lender, not to you or your family, noted Thomas. And that’s much like CHMC insurance.

Consider plain life insurance instead

Skipping on mortgage protection insurance doesn’t mean you have to go without coverage. Instead, you could buy life insurance, both Thomas and Heath said.

With life insurance, your payout remains the same through the term of the policy and the money comes with no strings attached.

For example, if you had a $300,000 mortgage and took out a policy for the same amount, your beneficiaries would still receive $300,000 even if you had paid down your mortgage in full by the time the claim is filed.

And life insurance is generally much cheaper, too, said Thomas.

“It typically could end up costing you half as much,” she said.

Why does anyone get mortgage protection insurance, then?

Many homebuyers, especially those buying their first home, haven’t done enough research to know what they’re getting into, said Thomas.

“Generally, the way it’s offered to [homebuyers] is when they’re sitting there, signing a whole bunch of [mortgage] paperwork and they’re bored and they’re starting at the wall,” said Heath.

When the bank proposes adding mortgage protection insurance, “for most people, it’s a five-second decision.”

Banking and mortgage industry professionals are often under enormous pressure to sell mortgage insurance, and benefit handsomely through commissions when they do, said Heath.

“Your friendly neighbourhood banker is financially motivated to get you to buy mortgage insurance, whether it’s in your best interest or not,” he added.

That may be why, a few years back, Heath himself discovered in his first-ever mortgage statement that he was, in fact, paying for mortgage protection insurance even if he had clearly declined coverage.

Heath eventually got his lender to cancel the policy and refund the premiums.

But many homebuyers aren’t well-informed enough to know they shouldn’t have signed up for the service in the first place.

“Mortgage [protection] insurance is very expensive, but it’s a captive market,” said Heath.

Housing agency now backing $502 billion in Canadian mortgages

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Fannie Mae announces third front-end credit insurance risk transfer transaction

May 25 Federal National Mortgage Association

* Fannie Mae announces third front-end credit insurance risk transfer transaction

* Has secured commitments for a new front-end credit insurance risk transfer transaction

* Loan pool is expected to be filled over course of nine months, beginning with Q2 2017 deliveries

* Fannie Mae will retain risk for first 50 basis points of loss on an approximately $5.2 billion pool of loans

* CIRT will provide protection for any credit losses not covered by underlying primary mortgage insurance

* All loans covered by new transaction will already have primary mortgage insurance coverage

* Transaction to shift part of credit risk on pools of single-family loans with combined upb of about $5.2 billion to a group of reinsurers

* Fannie Mae will retain risk for first 50 basis points of loss on an approximately $5.2 billion pool of loans Source text for Eikon: Further company coverage:

Unexpected expenses could spell big trouble for Millennial homeowners

TSX/NYSE/PSE: MFC     SEHK: 945

  • A significant percentage of Canadian homeowners lack the financial flexibility to adjust to rising interest rates, unexpected expenses or interruption of income, with Millennials most at risk, according to Manulife Bank survey
  • One in four Canadian homeowners have not had enough money on hand to pay bills once in the last 12 months while one in five are unprepared for a financial emergency
  • Average mortgage debt is up 11% to $201,000
  • Almost half of Millennial homeowners received help for their first homes

WATERLOO, ON, May 23, 2017 /CNW/ – Mortgage debt increased by 11 per cent1 to $201,000 last year and more than half (52 per cent) of Canadian mortgage holders lack the financial flexibility to quickly adjust to unexpected costs, per a new Manulife Bank of Canada survey. This despite 78 per cent of Canadians having made debt freedom a top priority.

The problem is most acute among Millennials, who saw their mortgage debt rise more than any other generation. Millennials are also most likely to have difficulty making a mortgage payment in the event of an emergency or if the primary earner in the household were to become unemployed.

“The truth about debt in Canada is that many homeowners are not prepared to adjust to rising interest rates, unforeseen expenses or interruption in their income,” says Rick Lunny, President and Chief Executive Office, Manulife Bank of Canada. “However, building flexibility into how they structure their debt can help ease the burden.”

Overall, nearly one quarter (24 per cent) of Canadian homeowners reported they have been caught short in paying bills in the last 12 months. The survey also revealed that 70 per cent of mortgage holders are not able to manage a ten per cent increase in their payments. Half (51 per cent) have $5,000 or less set aside to deal with a financial emergency while one fifth have nothing.

_____________________
1 The percentage change in average mortgage debt controlled for regional, age and income differences between the samples. However, different research providers were used for each wave of the study which may impact trended results.

Millennials not alone

Despite generally having more equity in their homes, many Baby Boomers face the same challenges as Millennial homeowners. Some 41 per cent of Baby Boomers said that home equity accounted for more than 60 per cent of their household wealth and for one in five (21 per cent) it makes up more than 80 per cent.

This indicates Boomers may need to rely on the sale of their primary residence to fund retirement, since much of their household wealth is wrapped up in home equity. However, more than three quarters (77 per cent) of Baby Boomer respondents want to remain in their current homes when they retire.

“Many Boomers approaching retirement share the same lack of financial flexibility as Millennials,” said Lunny. “They want to remain in their current homes, but their home makes up a big part of their net worth. Instead of downsizing, or even selling and renting, homeowners in this situation could consider using a flexible mortgage to access their home equity to supplement their retirement income.”

Helped into the housing market

Almost half (45 per cent) of Millennial homeowners reported that they received a financial gift or loan from their family when purchasing their first home. By comparison, just 37 per cent of Generation X and 31 per cent of Baby Boomers received help from family members when they purchased their first home. Conversely,  almost two in five (39 per cent) Boomers, many of whom are the parents of Millennials, still have mortgage debt.

The generational increase in new homeowners requiring family support comes despite a long-term trend toward two-income households. The number of Canadian families with two employed parents has doubled in the last 40 years, but housing costs are growing faster than incomes2.

“With higher home prices and larger mortgages, it’s more important than ever to find the mortgage that’s right for you,” says Lunny.  “A flexible mortgage that offers the ability to change or skip payments, or even withdraw money if your circumstances change, can help you ride out financial difficulties more easily.”

Manulife Bank recommends that Canadians have access to enough money to cover three to six months of expenses.

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2 Statistics Canada. May 30, 2016.

Quebec homeowners most at risk

In addition, the Manulife Bank survey found that:

  • Mortgage holders in Quebec (76 per cent) would have the most difficulty with an increase of 10 per cent to their mortgage payment and are more likely to be impacted should they have a fiscal emergency, as almost 30 per cent have no emergency funds.
  • British Columbia had the highest instance of homeowners getting help from family members when they purchased their first home, with almost half (45 per cent) saying they either borrowed or were given money.
  • Compared with other regions, homeowners in Manitoba and Saskatchewan (73 per cent) prefer most to own and live in their current home when they retire.

Debt management should begin at an early age

More than two in five (44 per cent) learned “a little” or nothing about debt management from their parents—and were also most likely to have been caught short financially in the past 12 months (28 per cent).

“Kids who learn about money and debt management are more likely to become financially healthy adults,” says Lunny. “One of the best lessons we can teach our children is the importance of saving for a rainy day. Being prepared for unexpected expenses is good for our financial health, good for our mental health and gives us the freedom and confidence to deal with the unexpected expenses and opportunities that come our way.”

About the Manulife Bank of Canada Debt Survey
This survey was conducted online within Canada by Nielsen on behalf of Manulife Bank of Canada from February 1 to 14, 2017, among 2,098 Canadian homeowners aged 20 to 69 with household income of $50,000 or more. The data were weighted by age, province of residence and household income where necessary to bring them in line with their actual proportions in the Canadian homeowner population.

About Manulife Bank
Established in 1993, Manulife Bank was the first federally regulated bank opened by an insurance company in Canada. It is a Schedule l federally chartered bank and a wholly-owned subsidiary of Manulife. As Canada’s first advisor-based bank, it has successfully grown to more than $22 billion in assets and serves clients across Canada.

About Manulife
Manulife Financial Corporation is a leading international financial services group that helps people achieve their dreams and aspirations by putting customers’ needs first and providing the right advice and solutions. We operate as John Hancock in the United States and Manulife elsewhere. We provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups and institutions. At the end of 2016, we had approximately 35,000 employees, 70,000 agents, and thousands of distribution partners, serving more than 22 million customers. As of March 31, 2017, we had $1 trillion (US$754 billion) in assets under management and administration, and in the previous 12 months we made almost $26.3 billion in payments to our customers. Our principal operations are in Asia, Canada and the United States where we have served customers for more than 100 years. With our global headquarters in Toronto, Canada, we trade as ‘MFC’ on the Toronto, New York, and the Philippine stock exchanges and under ‘945’ in Hong Kong.

SOURCE Manulife Financial Corporation

‘Civil conspiracy’ alleged in Vancouver mortgage fraud case

By Sam Cooper | Vancouver Sun

In a claim filed April 11, Antrim Balanced Mortgage Fund, GCA Capital and Vancouver businessman Todd Elliott Gray allege that Paul Li and his wife Susie Li, aka Qing Ling Liang, forged documents to take out three mortgages against a home in the 3000-block of Nanaimo St. that was actually owned by Paul Li’s parents. They allegedly took a $1.4-million mortgage from Antrim at 6.95 per cent interest, a $400,000 home loan from GCA at 11.75 per cent interest, and a mortgage worth $150,000 from Todd Gray, at 18 per cent annual interest.

Paul Li’s parents, Jing Wen Li and Jian Al Li, are also named as part of an alleged “conspiracy”. Jing Wen Li and Jian Al Li live with Paul Li in Fort St. James, and they are “restauranteurs”, legal filings say. Susie Li lives in the Nanaimo home.

Proceeds of the Antrim loan were used to pay off an existing $800,000 mortgage on the property, which had been taken out in February 2016 by Jing Wen Li and Jian Al Li, the claim says. They took out the existing mortgage with Neighbourhood Holding Company, legal filings say, after they, Paul Li and Susie Li met with a consultant and a mortgage broker named in the case.

Legal filings say the remainder of the $1.4-million Antrim loan was paid into a joint bank account for Jing Wen Li and Jian Al Li; fee payments were made to several consultants or mortgage brokers named in the case; and payments were made to other defendants, identified as Yan Jun Tan, Cheng Yi Zhou, Chi Ya Chen and Tei Cheung Kam.

Paul Li and his wife then took out mortgages from GCA and Todd Gray, legal filings say, with proceeds paid into Jing Wen Li and Jian Al Li’s bank account, after which payments were made to other defendants.

Only several payments were made from defendants on the three separate mortgage loans, legal filings say, before pre-authorized cheques were returned for non-sufficient funds. The three lenders joined together in foreclosure actions against the Nanaimo property in March 2017.

Jing Wen Li and Jian Al Li responded, and filed a counter-claim seeking a declaration that the three mortgages are void and unenforceable, legal filings say.

Jing Wen Li and Jian Al Li said that the three home loans on the Nanaimo property were entered into “by persons who used forged identifications.”

Jing Wen Li and Jian Al Li acknowledged receiving large deposits into their joint bank account when each of the three mortgages were taken out, but in legal filings said they “understood the funds related to a group investment pool in which Paul Li had asked them to participate … and (they) were obligated to transfer the money to various such investors … based on instructions from Paul Li and or his wife, Susie Liang, the funds were transferred to these third parties.”

The plaintiffs allege that “by knowingly obtaining the benefit of some, or all, of the mortgage proceeds through the fraudulent acts of Paul Li and Susie Li … the predominant intention of the defendants was entering into a conspiracy … further by knowingly obtaining the benefit of a complete payout and discharge of the Neighbourhood mortgage the predominant intention of the defendants Jian Li and Jing Li was to injure the plaintiffs.”

Antrim has lost $1.48 million plus interest accruing at 6.95 per cent, GCA has lost $427,000 with interest accruing at 11.75 per cent, and Todd Gray has lost about $150,000 with interest accruing at 18 per cent per year, their claim says.

The claim says the plaintiffs should be re-paid their losses, and “it would be unjust and unconscionable for the defendants to retain the mortgage proceeds.”

Defendants named in the April 11 B.C. Supreme Court claim have not yet filed responses.

Home Capital shares plunge after signing deal for $2 billion credit line

TORONTO _ Home Capital Group Inc. (TSX:HCG) shares lost more than half their value in early trading on Wednesday after the mortgage lender warned it would be unable to meet its financial targets under the terms of a new credit line it is working to secure.

Home Capital sought the credit line as savers stepped up withdrawals from the high-interest savings accounts of its Home Trust subsidiary, used by the company to fund its lending.

The lender’s stock price had already taken a hit last week after staff at Ontario’s securities regulator alleged that the company, two former CEOs and the current CFO broke the law in their handling of a scandal involving falsified loan applications. The company has said the allegations are without merit and vowed to defend itself.

The company said Wednesday that Home Trust has reached a non-binding agreement in principle with a unidentified major institutional investor for a $2-billion credit line. But it warned that the terms of the proposed agreement “would have a material impact on earnings, and would leave the company unable to meet previously announced financial targets.”

A firm commitment for the credit line was expected to be agreed to later today.

Shares in Home Capital fell $10.26 to $6.83 in late-morning trading on the Toronto Stock Exchange.

Home Capital said Wednesday that high-interest savings account balances have fallen by $591 million in the period from March 28 to April 24. The total high-interest savings account balance stood at roughly $1.4 billion at April 24.

“The company anticipates that further declines will occur, and that the credit line would also mitigate the impact of those,” Home Capital said in a statement.

Home Trust’s guaranteed investment certificate deposits remained essentially unchanged over that time at roughly $13.01 billion as of April 24 compared with $13.06 billion at March 28.

Home Trust and Home Bank deposits of up to $100,000 are protected by the Canadian government’s Canada Deposit Insurance Corp.

Combined with Home Trust’s current available liquidity, the credit line will provide access to more than $3.5 billion in total funding, the company said.

The $2-billion loan facility will be secured against a portfolio of mortgages originated by Home Trust and mature in 364 days.

Under terms of the proposed deal, Home Trust will be required to pay a non-refundable commitment fee of $100 million and make an initial draw of $1 billion. The interest rate on outstanding balances will be 10 per cent, and the standby fee on undrawn funds will be 2.5 per cent.

On Monday, Home Capital announced that chief financial officer Robert Morton, who is one of the three men named in the OSC allegations, will be assigned new responsibilities after first-quarter results are filed next month.

It also said Home Capital founder Gerald Soloway, who was formerly the company’s chief executive and also named in the allegations, will step down from the board of directors once a replacement is found.

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