Mortgage Insurance FAQ
What is mortgage insurance?
This is an insurance policy that guarantees the bank or other financial lender that they will get back the money if you should default on the loan. Although you may have no intention of missing the payments and running the risk of getting a bad credit rating, what happens if you become disabled or you die before the mortgage on your home is paid in full? This insurance is not the same thing as mortgage life insurance and it won’t pay off the loan in the event of your death before the loan is paid in full. It is a policy that protects the lender, because, after all it is the lender’s money that is at risk.
What are the benefits of mortgage insurance?
As a homeowner, you can really benefit from having mortgage insurance. It will help you in getting a mortgage on a new home much sooner and often allows you to purchase a home with a low down payment. You have more buying power because there is less risk to the lender in allowing you to borrow a higher amount of money. This allows repeat buyers to have more money to put into investments, make repairs to the home or buy furniture.
There are many benefits to getting mortgage insurance. Most lenders require a 10 % or 20% down payment on the amount of money they wish to borrow. When you are willing to purchase the insurance on the loan, this tells the lender you are willing to make a commitment to paying off the money that you owe. Therefore the lenders may only request a 5% down payment making it much easier for you to save up the money you need to buy a home.
What are the types of mortgage insurance available?
Some of the types of mortgage insurance you can have include the following:
- Refundable – this means you will get back any unused portion of the premium you paid if you decide to sell the home or cancel the policy
- Nonrefundable – you will not get back any money with this type of policy and because of that the premiums are not as expensive as they are with a refundable policy.
What is mortgage life insurance?
This is insurance that covers the amount of the mortgage if you should happen to die before the mortgage is paid in full. The insurance company that holds the policy will pay off the unpaid balance of the mortgage so that your loved ones won’t have to worry about coming up with the monthly payments when they no longer have your salary to rely on.
What is mortgage term life insurance and what are the benefits?
Mortgage term life insurance is a cheaper alternative than mortgage life insurance. Everyone who has a mortgage knows that they have an important investment that they need to protect. Having life insurance will help if you die of natural causes or through an accident before you have the mortgage paid in full. Even if you are no longer living, your family is still responsible for making the mortgage payments and this can be next to impossible when they no longer have your monthly income to use.
What is PMI and what are the benefits?
Private mortgage insurance is an insurance policy that you take out to assure the lender that he/she will receive the money back if you should default on the loan. This is not the same as having life insurance on the mortgage and you will not receive any financial gain from the insurance if you are disabled or if you die. The insurance will not pay off the loan for you in either of those cases. It is simply for the protection of the lender.
However, there are advantages to having private mortgage insurance for the borrower. When you take out a policy to protect the lender, the bank or financial institution that you deal with will allow you to pay a lesser amount as a down payment. This insurance is required if you borrow more than 80% of the total purchase price of a home. You could get away with having to pay only about 5% of the total. On a home that costs $200,000, you would only have to come up with $10,000. This is a difference of $30,000 under regular circumstances.
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