Business & Finance Renting & Real Estate

Mortgage Insurance Defined

A mortgage insurance is a financial guarantee that insures the lender against loss in case the borrower fails to pay his or her mortgage.
This means that if you are buying a home with less than twenty percent down payment or you are refinancing up to more than eighty percent the value of your home, you are required to pay for the mortgage insurance.
This type of insurance is also beneficial to a homebuyer since it allows them to become homeowners soon and dramatically increases their buying capacity.
If a buyer does not have the guarantee of mortgage insurance, lenders usually require a borrower to make a twenty percent down payment of the purchase price of a home, which means years of saving for some people.
The big down payment assures the mortgage lender that the borrower is committed to his or her investment and will try to meet the monthly mortgage obligation to protect the home investment.
With mortgage insurance, the lender will accept as little as five or ten percent down payment form a borrower since the mortgage insurance fills the gap between the regular twenty-percent down requirement.
The borrower generally pays for this insurance.
An initial premium will be collected during the closing and depending on the chosen premium plan; a monthly payment may be included in the payment of the house made to the mortgage lender.
The mortgage lender then remits the payment to the mortgage insurance.
This insurance is sometimes referred as a private mortgage insurance or PMI.
Its cost varies depending on the size of the down payment of the home loan.
Nevertheless, it normally amounts to around one-half of one percent of the loan.
This kind of insurance plays an important role in home ownership.
Without a mortgage insurance, people will not be able to get a loan to acquire a home.
While it is somewhat costly, it is a means of securing a mortgage and getting you closer to the home of your dreams.
Keep in mind that this type of insurance does not remain with your forever.
There are also financing options that will keep you from paying for it when looking for home financing.
Furthermore, it covers your mortgage payments as the borrower in case you are unable to pay for your monthly mortgage due to illness, injury or long-term unemployment.
If these things have happened to you before, then it is more important to get an insurance of this kind.
This insurance provides you with a percentage of income in case of loss of earnings.
There are some income protection plans that even cover mortgage payments in the policies.
Lenders can feel more secure in their ability to offer loans to people.
Without this insurance, lending money on homes will be riskier for most banks and for mortgage companies this means higher rates.
Make sure to weigh your options well when it comes to finding financing for your home purchase.
If you think that a bigger down payment is very hard for you to come up and it will take you longer to be able to buy your dream home, then consider a mortgage insurance and protect your investment as well.


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