For most Canadians, a home will be their highest-valued asset and largest expense. Closing costs are usually the biggest upfront cost for a house. Included in the closing costs is title insurance, which is an important insurance policy that protects your ownership of the house.
Just as you insure your home to protect both the physical and internal contents, it’s also important to insure your property’s title.
A title is a document that shows who legally owns a property, so any issues with the property, such as liens or back taxes, are tied to the title. Title insurance protects against issues with a property’s title. Who is protected depends on what kind of title insurance is purchased: lender’s title insurance or owner’s title insurance.
What is covered by title insurance depends on the title insurance policy you buy, but generally it protects you against any problems that come with the title for a property. These issues include:
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There are two main kinds of title insurance: lender’s title insurance and owner’s title insurance.
Lender’s title insurance is a type of insurance that protects lenders from potential loss due to issues with the transfer of property ownership. It’s a type of insurance policy that some lenders may require borrowers to purchase when trying to get a mortgage. Since lenders assume a large portion of the financial risk when providing a mortgage, they may require the borrower to purchase this policy. Essentially, the lender’s title insurance protects them and provides the buyer with some assurance as well that the seller is legally able to transfer the title ownership.
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Owner’s title insurance is usually purchased by the home seller and not the buyer. It is an optional form of insurance that is meant to protect both the seller and buyer from any title issues that may come up. Typically, this insurance can protect you against nasty surprises like years of back taxes being owed on the property or if someone tries to challenge your ownership of the property.
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Title insurance can be expensive, often upwards of $1,000, but it is still a wise investment. If you can find a way to save on title insurance, all the better.
There are a few ways that you can save on title insurance:
Besides protecting a buyer and seller against any potential title issues, title insurance is also a great option to protect against title fraud.
Title fraud is when someone poses as a homeowner when they do not, in fact, own the home. They can get a mortgage, sell the home, or assume the title of the home without the real homeowner’s consent.
You have to pay a few hundred dollars extra to get this protection, but it is well worth it. You, as the buyer, are protected against property risks, including title fraud, back taxes, problems with building permits, liens against the property that the previous homebuyer was responsible for, and encroachments on other properties, as long as you own the property.
Title insurance helps to protect you against many issues related to your home’s property, including back taxes, liens, easements, and non-compliance with zoning bylaws. While title insurance isn’t mandatory by law, certain lenders may require lender’s title insurance before approving you for a mortgage. Given that a home is a high-value investment, it may be best to pay this form of insurance. That way, if there is a problem with your home’s title, your title insurance can cover the damage. Moreover, if you’re spending tens or hundreds of thousands of dollars for a home already, spending a little extra on title insurance can save you from a massive headache.
Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and NewEngineer.com. In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.
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