After getting my mortgage approved, I needed go in to the bank (I bank with RBC) to get some paperwork signed to say that 'yes I am accepting this liability'... doesn't sound as soon as it did when I first said to myself, 'I just got approved for a mortgage!" :p anyways!
Part way through signing the document I noticed that my monthly payment was higher than what he told me initially.
'Why is this I ask?'
He told me that they added on the $15 life and disability insurance option, and because I was going with the accelerated bi-weekly payments, that meant that I'd be paying $30 + mortgage monthly. I did some quick math in my head and said 'no I don't want this.' I was surprised that he didn't try to push the product further on me, or maybe he knew it wasn't a good deal and just surrendered to it. Hmm... for those who don't know, I used to be very passionate about this kind of thing. I used to be a crusader for Term Life Insurance back 2 years ago when I was working with Primerica Financial Services. I truly believed in their philosophy of Buy Term, Save the Difference! That topic can be for another post but it somewhat relates to why this 'life' insurance is not the best bang for your buck and here is why:
Let's say you go to the Mortgage Calculator on the RBC website and you input $250,000 as your mortgage amount, variable, 2.5%, 5 year term, 25 year amortization (let's say it is a perfect world and you get the 2.5% for entire duration of your mortgage)... then you get a report like this:
Looking good so far... A couple of things off the bat... I would recommend going with the accelerated bi-weekly plan if you can. It will shave a good 3-4 years off your amortization (life of the mortgage), allowing you to be debt-free (out of your mortgage) sooner... if you can contribute more, DO IT, it will expedite the process even more! :) Don't be paying JUST interest each month, make sure you bring down your amount by paying off the principal, and the only way of doing that is paying a bit more each month... good luck!
So back to this mortgage insurance thing... Here is where the trick is...
Underlying message: the mortgage insurance only covers you for the term of the mortgage. The coverage actually decreases over time while you are maintaining the same payment amount each month.
OUCH!
The above is assuming $30 a month for both Mortgage and Term insurance for the same 25 year period. 1$ per coverage amount goes down as your mortgage decreases, while term stays the same throughout the term.
Yeah... if you stick to your schedule, you should be able to pay off your mortgage in 19 years (goodie)... that's when you can stop paying for this stupid mortgage insurance thing. Then what happens after that? Nothing, you're screwed... you are not covered anymore :o! You're probably thinking... wow... this is such a scam! IT IS! Don't get it!
My suggestion: get in touch with a Primerica Rep (I can refer you to mine if you need one, he's really good) to run a quote for you, and he/she should be able to match or beat the price of the bank's mortgage insurance rate, with more coverage for a longer period of time so your family is protected longer. I should stress that Term Life Insurance is the only type of insurance anyone should get. Insurance agents will try to sell you what they call, Whole Life Insurance, where they bundle Term + Investment into one product... it's a demon product! I'll expand on this more in another post.
I hope this was helpful! Ask me any questions you might have :)
Until next time...
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