In Ontario, your mortgage and home insurance are closely connected. That’s because mortgage lenders have specific requirements homeowners must meet, and in most cases, that includes buying home insurance. 

Lenders may also set minimum coverage amounts, limits, or other conditions to protect the property they’re financing. Since these can all affect the coverage you need and the cost of home insurance in Ontario, it’s important to understand how the two work together. 

In this article, you’ll learn more about how a mortgage can affect your home insurance, whether you’ll need coverage during the mortgage process, and what to watch for to ensure you’re fully protected. 

Key takeaways

Most Ontario mortgage lenders require home insurance. Having a mortgage can affect your policy by influencing:

• The types of coverage you need
• The coverage limits you set
• Who’s listed on the policy
• How insurance claims are handled

Ontario mortgage lenders almost always require home insurance

If you take out a mortgage in Ontario, your lender will almost always require you to have an active home insurance policy in place and keep it through the entire life of the mortgage. Maintaining continuous, uninterrupted coverage is typically a condition of your loan. 

This is common across all types of lenders, whether you’re borrowing from one of the Big Five banks, a credit union, or a private lender. 

So, why is home insurance so important to lenders? 

Put simply, it comes down to protecting their investment. When a lender approves your mortgage, they’re loaning you hundreds of thousands of dollars. If something catastrophic were to happen to the property, like a fire or another covered disaster, home insurance helps ensure it can be repaired or rebuilt. In worst-case scenarios, it also helps protect the lender from a total financial loss. 

“In Ontario, most lenders won’t release mortgage funds unless home insurance is in place,” explains Channelle Cote, an AMF- and RIBO-licensed broker at YouSet. “From their perspective, it’s about making sure the property, and the loan tied to it, is protected if something unexpected happens.” 

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How mortgages affect home insurance

Having a mortgage doesn’t just influence whether you need home insurance; it can also shape what your policy includes and how it’s structured. Depending on your lender, a mortgage may affect the types of coverage you’re required to get, who’s listed on the policy, and how claims are handled. 

The four main factors that influence home insurance are: 

• Types of coverage you need
• Coverage limits you set 
• Who’s listed on the policy
• How claims are handled

Types of coverage you need 

A standard home insurance policy in Ontario typically includes coverage for your dwelling, belongings, additional living expenses, and personal liability coverage. However, if you have a mortgage, your lender may require you to add specific types of coverage beyond the standard policy. 

For example, some lenders may require coverage for certain types of water damage, such as overland water, above-ground water, and sewer backup. They might also require replacement cost coverage for certain structures, or earthquake coverage in high-risk areas. 

If your lender requires coverage that isn’t included in a standard policy, you’ll need to add it in order for your mortgage to be approved and funded. 

Coverage limits you set 

In addition to requiring specific types of coverage, lenders may also want you to carry higher coverage limits than what might be considered “standard” by your home insurance provider. This helps ensure there’s sufficient coverage to fully protect the property (and the lender’s financial stake). 

For example, your dwelling coverage limit typically needs to be high enough to rebuild the property at the current replacement cost, not just its market value. 

If your coverage limits fall below your lender’s requirements, it could prevent your mortgage approval or delay closing. 

Who’s listed on the policy

You, the homeowner, are the primary policyholder on your home insurance policy. However, the lender you’re borrowing from will usually require itself to be listed as the “first loss payee” or “mortgagee.” This gives the lender certain rights under the policy and ensures their financial interest in the property is protected. 

When finalizing your home insurance policy, the insurer will usually ask for your lender’s details during checkout so they can be added to the policy before coverage begins. 

How claims are handled

Having a mortgage can also affect how insurance claims are handled and paid out. If your lender is listed as the “first loss payee” or “mortgagee,” they have priority for insurance payouts for major damage. 

In these situations, the insurance payout will first be applied to the outstanding mortgage balance. Any remaining funds will then be paid to you to cover repairs or rebuilding. 

For example, if your home suffers $300,000 in fire damage and your remaining mortgage balance is $200,000, the lender will first get $200,000 to cover the loan, and the remaining $100,000 goes to you to pay for repairs. 

Do you need home insurance before getting a mortgage?

If your lender requires home insurance (which most do), you’ll need to get it before closing on your home. That said, you don’t need home insurance before applying for a mortgage. Most buyers get insurance after they’ve been approved and have a confirmed closing date. 
In practice, this means you’ll usually shop for and purchase home insurance once you’ve been approved for a mortgage, then provide proof to your lender to ensure everything is in place before closing.