The bank will not release any money until you have set up Mortgage Insurance. Any time of Mortgage requires Mortgage Insurance whether it it is first time mortgage or if you are refinancing your mortgage.
Mortgage Insurance is composed of 2 parts
- Life Insurance
- Building Insurance
1) Life Insurance is a coverage in an event of the death. It covers all borrowers of the mortgage. The bank will require that the mortgage policy will cover the full mortgage amount borrowed from the bank. In the unfortunate event of death the insurance will cover and pay the full mortgage to the bank, and the property will not longer be mortgaged by the bank. This insurance only covers death and nothing else. The mortgage insurance must cover the full length of the mortgage term. Generally, the monthly premium is dependent on the age of the borrowers, and the premium will decrease towards the end of the term as the amount of capital of the mortgage is lowered.
2) Building insurance covers the property in event of destruction to the property such as a fire, flood or an earthquake. The bank wants to make sure that the insurance will cover the cost of rebuilding the property from scratch. The Appraiser determines the cost of rebuilding the property. The appraiser will add the amount to the Mortgage Appraisal. This amount is the cost for building not the value of the property.