What is Mortgage Insurance?

What is Mortgage Insurance? Related Information:

If you are applying for a mortgage, most lenders will require you to have 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. Well. You might think, I have no intention of not making 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.

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.

The borrower is the person who pays the mortgage insurance premiums even though it offers protection for the lender. When the closing costs are factored into the mortgage, a premium on the insurance is also included. After that you can choose to make monthly payments on the annual premium. You can choose to have this amount included in your mortgage payment and make arrangements for the lender to pay it out to the insurance company or you can send it directly to the insurance company each month by the deadline.

The amount that you pay upon closing usually covers the premium for the first year of the mortgage, giving you another full year to get the money for the following year. This is called an annual insurance premium, but if you choose to pay monthly it cuts down your closing costs on the mortgage dramatically.

When you purchase mortgage insurance, you can choose refundable or non-refundable policies. With a refundable policy, you can receive a refund on any portion of the premium that is not used if you decide to sell the home within the year or if the policy is discontinued before the balance of the mortgage is repaid. The premium for a non-refundable mortgage insurance is cheaper than a refundable policy giving you more money for your own needs.

You can get the mortgage insurance you need from most insurance companies. Generally the lenders have an insurance company that they are used to dealing with and can put you in touch with a representative. You don’t necessarily have to use the company the lender recommends but it does make it easier, especially if this is your first time buying a home and you have not had to deal with home or mortgage insurance in the past.