Home : Mortgage : Here’s How Mortgage Insurance Can Be Useful

Here’s How Mortgage Insurance Can Be Useful

Mortgage insurance is an insurance policy to protects lenders in the case of defaults on payments by the borrower or in the case of death of the homeowner.

Mortgage insurance can be paid in two ways. It can be paid in the form of a lump sum payment at the start of the mortgage term or can be paid during the term of the mortgage loan. However, in the case of a private mortgage insurance (PMI), which needs to be paid in case a borrower fails to pay 20% of the mortgage as down payment, the insurance is canceled as soon as the borrower reaches the 20% mark.

Here’s How Mortgage Insurance Can Be Useful

Mortgage life insurance
As soon as you start signing the paperwork for a mortgage, you might be offered a mortgage life insurance. This is to make sure that you understand the risks of what you’re getting into. You can choose to not take the insurance and if you do, you will be required to sign forms and agreements that confirm your decision of declining the insurance.

Private mortgage insurance
One thing to know about mortgage insurance is that these only exist to protect lenders. Private mortgage insurance, like all other types of mortgage insurances, does exactly this.

In the case of a conventional mortgage loan, if you make a down payment of less than 20% of the mortgage, you are required to pay a PMI. Also, if the current worth of your house is less than 20% of the original value and if you wish to refinance to pay the loan, you need to pay PMI.

You Might Also Like:  6 Ways To Buy A House Without A Mortgage

Mortgage title insurance
A legal representative will come to your house for a title search before your mortgage loan period ends. This search is initiated to uncover any liens that could affect the selling process of your home. A title search also helps to verify the owner of the property. In case it is not possible to do this verification, the sale is invalidated. And this loss will be protected by a mortgage title insurance.

A mortgage title insurance also protects the lender against losses if, at the time of sale, it comes to light that someone other than the seller owned the property.

Benefits of mortgage insurance
Mortgage insurances are helpful both for homeowners and lenders. These insurances make things easier to own a home and to invest in it, which is good for both sides of the transaction. The following are some of the major benefits of mortgage insurance.

  • Lower down payments: Depending on your profile and credit history as a mortgage borrower, various government and private agencies will offer a few low down payment options.
  • The sooner, the better: When the down payments are low, you will not take long to save enough money for your dream home.
  • Decreased risk for lenders: When the mortgage insurance is paid, lenders are less likely to lose money with a borrower defaulting and a home going into foreclosure. Thus, a mortgage insurance helps create economic stability among banks and lenders with highly decreased risks.
  • Increased borrowing power: When the risks are reduced, lenders are more forgiving towards lower down payments and less-than-perfect credit, which means more homes get financed easily.

Keep yourself updated with the latest on  Mortgage . Like us on  Facebook  and follow us on  Twitter  for more on Investments.

Disclaimer:
The content provided on our blog site traverses numerous categories, offering readers valuable and practical information. Readers can use the editorial team’s research and data to gain more insights into their topics of interest. However, they are requested not to treat the articles as conclusive. The website team cannot be held responsible for differences in data or inaccuracies found across other platforms. Please also note that the site might also miss out on various schemes and offers available that the readers may find more beneficial than the ones we cover.

Trending Articles