Brandon Scott is a Sherwood Park / Edmonton Mortgage Broker and the author of a weekly column entitled Real Estate Solutions in the Sherwood Park News. This article was originally published on June 14, 2013

Edmonton buyers confused about insurance: When buying a Edmonton home there are a lot of moving pieces that require coordination and attention to detail to ensure the process goes smoothly. Even experienced home buyers can have difficulty making sense of all the terms and conditions required to close successfully. One of those terms that seem to be the most confusing is “insurance.”  This word is often used interchangeably to describe three different types of insurance so it’s no wonder buyers are scratching their head. Let’s set the record straight.

First of all, mortgage insurance is a federal requirement when a borrower is purchasing a home and putting down less than twenty percent. This insurance is provided by Canada Mortgage Housing Corporation (CMHC), Genworth Canada, and Canada Guaranty.  It should accurately be known as default insurance since this coverage protects the bank or lender in the event that the borrower fails to meet their payment obligations.

Next the lender will require you to maintain insurance that will cover the replacement cost of the home in the event of a loss. This is known as home owners insurance or fire insurance and is not optional because, like you, the lender has a big investment in your home. The amount of the policy is determined by a variety of factors such as the type of construction, the age of the house, the deductible, and the amount of coverage required.

Finally there is mortgage insurance which is offered by the bank or lender to protect the buyer in the event of an unexpected emergency such as death, critical illness, job loss or disability. Unlike the default insurance, or home owners insurance this coverage is optional.

So the next time you hear someone talk about mortgage insurance you can now ask them to clarify so there is no more misunderstanding or confusion about the insurance you need for your Edmonton real estate purchase.

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