Mortgage Insurance

What’s mortgage insurance? Is it right for me? Is it costly? What will I get? The list of questions is endless. But your answers to these questions will start from knowing the basics. Learn how a mortgage insurance company can help you get that dream house you’ve always wanted.

Who Will Benefit From Mortgage Insurance’s Protection?

Mortgage insurance provides protection to the lender against any loss in case the borrower fails to re-pay the loan. In such event, the lender may not be able to recover from the loss of foreclosing a loan and the only way to be protected is through mortgage insurance. What happens is that the borrow pays for the premium, but the beneficiary will be the lender.

It is important to know that mortgage insurance has nothing to do or does not protect the applicant directly. The only thing a borrower can enjoy from his mortgage insurance is a 20% cutback of down payment for applying loans.

That’s Unfair, Why Can’t Lenders Pay The Premiums Themselves?

Consider this question as not naïve. Why, yes, because the threats of loss and default by a borrower are relatively high with down payments not more than 20%. It’s a standard requirement of any lender. Actually, it all started in the infancy of the PMI, there were problems seen if the lender will pay for the premium. The borrower could be affected too with these problems. So in order to avoid confusion and unnecessary crisis, borrowers are the ones obliged to pay for the premium.

How Much Will It Cost Me If I Get Mortgage Insurance?

Good question. But it all depends upon the perception of the borrower. Getting home mortgage insurance is actually more of an investment rather an expense. Imagine the huge savings you can get if you procure a mortgage insurance policy. Now, here’s how it works, an 85% loan will only cost 13.4% for the rate, and a 90% loan will only cost 12.5%. Is that too big for you?

Here’s another good example. If you decide to buy a real estate worth $300,000.00, then you will have to obtain $60,000.00 for the down payment. That’s a huge sum of money you will need. With, mortgage insurance, you will be able to get that dream house you’ve always wanted at less than $60,000.00 down payment.

The catch is that if lenders allow the borrowers to pay for their loss in case of default, there will be more people to borrow. Imagine the convenience it brings to potential borrowers. You have to face it; a 20% cut down for a loan down payment is already a big saver. Without it, lenders will only get few demands for house loans.

So Does That Mean If I Have Lesser Down Payment I Get More Coverage Too?

Exactly. The more you pay for a down, the lesser coverage you will need. For example, a down payment of five percent will need more coverage, fifteen percent down and you only get less insurance. For ARMs or adjustable rate mortgages, your cost for private mortgage insurance will be significantly higher.

Take note that it’s also plausible that a lender will approve your loan with conditions. And the mortgage insurer may disapprove your coverage. So a good advice for shopping a new place is to consult with the lender first and see if you qualify for the amount of mortgage and check if your private mortgage insurer will cover for the down.

Other people say that private mortgage insurance is costly since you will have to pay for monthly premium which is based on the mortgage debt amount. This will also increment, that’s why for some it’s an unlikely choice. But hey, if you are dying to get a home, private mortgage insurance will surely help you get what you want especially these times when house prices are raising, you don’t want to wait for tomorrow, right?