People that need mortgage insurance are generally those that are unable to pay at least 20% of the payment for when they get ready to buy a house. The majority of people are usually unable to pay most of the fee for the down payment.
However, this mortgage insurance payment is not something that you should continue to have to pay for the rest of your life.
When you receive the 20% equity through the payments that you make monthly, then you should no longer have to continue paying for this insurance. However, if you happen to have an FHA loan then you will need to continue paying for the mortgage insurance.
The lender is who is responsible for telling you when you need to stop making mortgage insurance payments. It is not something that is difficult to come up with. You just need to work out the calculations of how much you owe, and when you should stop paying.
If the lender does not mention this to you, then you should bring this up to them. Most lenders will most likely be responsible for letting you know when your payments should end. Their job is to cancel the mortgage insurance payments when they know that you have made your final payment.
However, people make mistakes, and this includes the lenders, which means you should also be keeping track of when your payments for the mortgage insurance ends.
You need to make certain that you know who you need to contact on the information of how you are making your payments and when the expected date for those payments to end would be.
Ask the lender to give you the contact info of the person who is responsible for keeping track of your payments. Usually, the contact information for questions and concerns will be mailed to you with your statement of the payments each year.
Let’s say you are a high-risk borrower, and you are being lent money for your mortgage. The lender could have you make payments on your mortgage until the balance reaches about 50% the amount of the cost for your home.
Usually, such a borrower is one that has a default on their payments for whatever reason they might need it. If you make payments on time each month for every year that you need to make the payments, then you’d have a higher chance at getting your mortgage payments canceled a lot quicker than what was originally planned.
Remember though, you need to make sure that you are proving to the lenders that you are responsible by making your payments on time every month.
With 20% equity left on your home, you should not have a problem getting the lender to end your mortgage payments. If for some reason you are dealing with a lender that does not want to work with you in your particular situation, then it might be a good idea to refinance your home. If you choose to get your home refinanced; try to go with a lender that will still give you low payments.
The Pros and Cons of Mortgage Protection Insurance
You’ve heard it before, but it bears repeating: your home is likely to be the single most important purchase that you will make during your lifetime. It’s also likely to be the most expensive.
Though a standard 30-year mortgage helps to spread the cost of home ownership down through the years, it’s still a hefty responsibility that your family might have trouble fulfilling if you lose your job, fall ill, or die unexpectedly.
Read on to learn when and if it makes sense to obtain mortgage protection insurance, a form of payment protection insurance that may help defray the cost of an unforeseen catastrophe.
How Does Mortgage Protection Insurance Work?
As its name implies, mortgage protection insurance exists to cover the balance of your mortgage payments in the event of an unexpected life event. Some policies pay out only in the event of the policyholder’s death, while others cover principal and interest payments on a mortgage for a fixed length during an extended period of unemployment or illness.
Although mortgage payment insurance is considered to be a type of payment protection insurance, there are several key factors that differentiate it from other forms of PPI.
Restrictions and Limitations
Mortgage protection insurance policies that pay out in the event of your death tend to be less restrictive, delivering your loan’s remaining balance directly to its issuer and calling it done. Policies that kick in when you lose your job, on the other hand, tend to come with some caveats. These include:
- A restrictive period of one to two months immediately following your termination, during which time you won’t receive any payouts.
- Nullification in the event of a voluntary “quit” or termination for gross misconduct or negligence. In other words, you must be laid off involuntarily to collect MPI benefits.
- A probationary period, typically lasting one to three months from the policy’s date of origination, during which you won’t receive benefits if you are laid off.
Benefits and Perks
In contrast to other forms of life insurance, getting approved for a mortgage protection policy is relatively easy. Even if you work in a high-risk occupation and pay through the nose for health and disability insurance, you will probably be able to find an affordable, comprehensive MPI policy.
What’s more, MPI payouts tend to be generous. Many insurers now offer job-loss and illness policies that cover your homeowners’ association fees and other extras in addition to principal and interest payments on your actual mortgage.
When Does MPI Make Sense?
Your MPI policy will be of tremendous benefit in any of these common situations:
- Business is down at your employer and you suspect mass layoffs are coming. In this case, you’ll want to take out your policy early enough to avoid the aforementioned probationary period.
- You suffer from a chronic health issue that may temporarily render you unfit for work in the future.
- You are your household’s sole breadwinner and worry about your family’s ability to cover the debts that you will leave behind if you die.
Whether you worry about your job security or simply want to prepare for an unforeseen catastrophe, mortgage protection insurance can prevent your most expensive obligation from ruining your family’s finances. It isn’t free, but it’s a small price to pay for peace of mind.
Mortgage Life Assurance
Mortgage life assurance is a type of insurance that is meant to pay off the remaining debt on your mortgage in the event of your death. In this way, it protects your dependents and removes the burden of repaying a mortgage from them.
This type of life insurance is a decreasing term policy, meaning that the amount of money paid out when you die is reduced as your mortgage goes down. Mortgage life assurance should not be confused with mortgage payment protection insurance.
This type of insurance provides cover for monthly mortgage payments in case of redundancy or loss of income through illness but not if you die before your mortgage is paid off.
Have A Life Insurance For Your Mortgage
If you have a mortgage, it is always advisable to have some kind of life insurance. This is to prevent your property from being repossessed in case you die before you have repaid the full amount you have borrowed.
If you are still unsure, bear in mind that if your partner would struggle to meet repayments, if you have dependent children, or if both these apply, it is a particularly good idea to take out life assurance and can give you peace of mind. If you have no dependents and do not intend to leave an inheritance, you may decide that you do not need it.
As with any other type of insurance, the amount you pay depends on how high the risk of you dying is. So, for example, a 25-year-old, non-smoking female will pay less on average than a 50-year-old male smoker. Some medical conditions can also drive the price up.
Always make sure that you give the insurance company full disclosure of any past medical conditions and any potential risks. Failure to disclose something could later be used to justify not paying out, which is not something you want your family to face.
Check What Is Being Offered
Always check exactly what is being offered when you take out your life assurance, otherwise, you could find yourself paying more for less coverage. Some policies may even pay out if the policyholder is diagnosed with a terminal or a critical illness, so it might be worth considering one of these for extra reassurance.
Because the market is becoming more and more competitive, prices are actually more affordable than they used to be. Therefore, if you already have a policy, don`t be scared to compare quotes as you may find you could be getting a better deal elsewhere. If you do decide to switch, make sure your new policy begins as your old one is ending. Don`t allow yourself to have a period without cover.
To find the cheapest policy, always shop around and compare prices. With mortgage life assurance, it is actually a case of the cheaper the better, as it is a fixed sum being paid out.
However, remember to check that the premiums are guaranteed and are not up for review, or you could see the amount you pay to go up from year to year. Always check the terms and conditions and if necessary, read more to ensure you have all the information you need.
Why You Need Mortgage Life Insurance
Everyone is familiar with regular life insurance, and there’s plenty of information in the public sphere for anyone that wants to educate themselves on its pitfalls and its benefits.
What people may not know is that it’s possible to get life insurance for big investments, and these policies do exactly what their names promise: They cover the leftover debt on things like homes.
Mortgage life insurance may be the cheapest way for someone to ensure that their family doesn’t get kicked onto the streets, and it comes in multiple varieties to meet the needs of different people.
Decreasing Term Insurance
Most mortgages are repayment mortgages where the balance of the loan decreases over time. Decreasing term insurance provides coverage for the exact amount of the balance should anything happen to the policyholder.
If the mortgage is paid off before anything happens to the policyholder, the insurance is null and void and there’s no way to get any money back. The same is true if the policy is canceled prematurely.
The reason that this is still an attractive option is because of its cost. The monthly payments average around $50, which is far lower than a comprehensive life insurance plan, and it might even be cheaper depending on the provider. It’s a very small price to pay for the amount of security it provides.
Level Term Insurance
This is for people that have an interest-only mortgage where the balance stays the same throughout the life of the loan and the homeowner only covers the interest.
The amount that’s insured never changes because the mortgage itself remains static, and just like decreasing term insurance, the policy is void if it’s canceled early or it extends to the end of the loan. It’s also like decreasing term insurance in that it’s incredibly cheap; the prices for the two kinds of insurance are almost exactly the same.
Terminal and Critical Illness Coverage
Most policies include coverage that will clear the balance of the mortgage in the event that the policyholder is diagnosed with a terminal condition. Critical illness coverage is available with both types of insurance, although insurance providers define what they will and will not cover so it’s best to do some research before picking a plan.
With critical illness coverage, it’s possible to request payout should the policyholder come down with a condition that renders them unable to work and that they might not recover from. If they do recover, the money is theirs to keep and the policy is canceled.
Both forms of protection only increase the monthly cost by a small amount, so it’s an excellent idea for anyone that wants a bit of added security.
A Warning Against Mandatory Mortgage Life Insurance
There’s a different kind of mortgage life insurance aside from the usual two kinds, and it’s almost always a mandatory requirement on home loans that require less than 20 percent up front.
This is called private mortgage insurance, and not only is the cost much greater than with other forms of mortgage life insurance, but it can also be difficult to cancel the policy, and companies that offer this have been known to collect premiums beyond the life of the loan.
As a general rule, never take a loan with a mandatory mortgage life insurance requirement, and never accept a policy that requires a triple-digit payment each month.
When it comes to companies that aren’t trying to scam anyone, mortgage life insurance is a really good investment for someone that doesn’t have a regular life insurance policy and doesn’t want one. It insures perhaps the most important piece of property that anyone has, and in the event that something unspeakable happens, their family will always have a home.
Private Mortgage Insurance (PMI)
In Private Mortgage Insurance, lenders require the home buyer to purchase insurance to cover if the down payment he intends to pay is less than 20% of the total property value. This policy is intended to protect the lender in case of default on the mortgage.
It ensures that the investor recovers the money invested even if the borrower is unable to pay and the property has to be disposed off at a price that is less than what it is worth. It also assists the public who cannot afford to pay for the total amount of the house to own one and pay in easily manageable installments.
With this type of insurance, it is possible for you to own a house with a down payment of as little as 3%. Down payments of more than 20% do not require insurance.
Insurance Premiums Paid By Borrower
Under PMI there is the Borrower–paid Private Mortgage Insurance (BPMI). In this type of PMI, the borrower pays the insurance premiums. This option also allows the borrower to skip the 20 % down payment. However, the borrower continues to pay the mortgage installments to the lender.
The national regulations state that the borrower should cease the insurance premium payments when the total amount paid reaches a pre-set percentage, mostly 75%-80% of the total amount owed. When this percentage is reached, the borrower turns to pay only the mortgage premiums as the risk associated with the initial percentage has passed.
The advantage of this option is that the borrower can request for an appraisal when he calculates that the amount paid has reached about 78% of the total amount paid and therefore quit paying for the insurance.
The Lender-paid Private Mortgage Insurance option dictates that the lender pays for the insurance. Most of the time the borrower is not aware of its presence, it is a protective measure by the lender against default by the borrower.
This amount is paid as a lump sum by the lender. However, to cover for this added expense, the lender will increase the interest rate on your mortgage. So in essence, the homeowner is the one paying for the insurance.
Advantage For The Borrower
The advantage of this to the borrower is that he is saved from the hassle of searching for insurance companies and the necessary documentation to prove he can pay the insurance.
However, the demerit is that the mortgage provider usually seeks a low insurance rate from the insurance provider but charges you a higher rate on your mortgage, thereby making more money in the process. This option is always cheaper for the borrower than the BPMI option.
However, the borrower cannot request for a cease on the additional amount accrued because of the LPMI. He has to pay the high rate all through the mortgage life.
In Private Mortgage Insurance the option to obtain is determined by the time span you plan to spend in the property, your credit score, appreciation rate of the property, total cost of the property and if you plan to refinance.