Buying insurance you don’t need can save money on your mortgage

The answer, unintuitively, is to save money.

, they charge a higher rate. The advantage is that the borrower doesn’t have to pay for insurance, so it’s usually a better deal overall.“Right now, for buyers purchasing properties under $1-million, it’s often cheaper to get an insured mortgage rate and pay CMHC insurance than to get uninsured rates,” says Community Savings Credit Union CEO Mike Schilling.

For borrowers who are purchasing a home or switching lenders with more than 20 per cent equity, it’s sometimes cheaper to pay the default insurance premium than it is to pay a higher uninsured mortgage rate.Assume you have a $100,000 mortgage and 25 per cent home equity. The lowest nationally advertised five-year fixed rates are currently 5.79 per cent and 5.24 per cent .

In this case, paying for insurance yourself might still make sense. It might cost you a few hundred bucks per $100,000 borrowed, but having a default-insured mortgage can save you a wad of money at renewal – given insured renewal rates are usually the lowest rates in Canada.Buying insurance to get a lower rate does not make sense if you refinance the entire mortgage or buy a $1-million-plus home before you recoup the insurance cost. In those cases, you could lose your low insured mortgage rate.

On a side note, most borrowers roll the default insurance premium into the mortgage, so there’s no out-of-pocket cost.If you have 20 per cent equity or more, want a longer-term mortgage and meet the above criteria, ask a mortgage broker or lender to run the math to see if you’re better off paying for default insurance based on the best rates available.

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