Mortgage insurance is also sometimes called as mortgage guaranty. In simpler terms, this insurance can be described as an insurance policy with the help of which an investor or a lender can compensate any losses that may arise on the occasion of a mortgage loan becoming defaulted. There are two main types of this life insurance that are mainly used namely a private mortgage or a public mortgage.
Mortgage Life Insurance
Mortgage insurance is a life insurance policy that will pay off your home in the case of your untimely death. This policy will also offer you the ability to add disability, critical illness, and a return of premium or return of your money if you keep the policy for the full term.
In some circles Mortgage insurance could also mean Private Mortgage Insurance (PMI).
In order to get a public mortgage insurance issued by the Federal Housing Administration, an insurance premium as a percentage of the loan will have to be paid at the time of closing. In most cases, this premium is paid by the lender on the behalf of the borrower. In some cases, a monthly premium may also be charged based on the loan-to-value ratio.
The main different kinds of mortgage insurances are:
Private Mortgage Insurance
This insurance is usually taken up in cases where the down payments are calculated to be below 20%. The insurance rates for this insurance are charged from 1.5% to 6% per year on the principal amount of the loan. The actual rate charged will depend upon several factors such as the percentage of the loan that is insured, the credit score, the loan to value etc. The premium rates for a private insurance on mortgage can actually be paid on a monthly, annual or lump sum basis. Certain companies also allow split premium conditions.
Borrower-Paid Private Mortgage Insurance
This is an insurance taken on mortgage loan defaults that is provided by an insurance company and the premium for which is paid by the borrower. By undertaking the payment for a borrower-paid private insurance on mortgage, a borrower can get a mortgage without being required to put in a down payment of 20%. This insurance provides coverage to the lender for the extra risk of giving a high loan-to-value mortgage.
Lender-Paid Private Mortgage Insurance
This insurance is exactly the same as a borrower-paid private insurance on mortgage except for the fact that in such a case, the insurance premium is paid by the lender. In most cases, the borrower of the mortgage loan is not even aware that the lender is covered by the insurance. For lender-paid private insurance, the lender usually includes the cost of the premium he or she is required to pay according to the interest rate that is charged on the loan from the borrower.
When you buy a house you might need to purchase PMI. Once you have the keys to your new home, you should look into purchasing mortgage life insurance which will pay off your house in case you die so your most important asset you home will be paid off free and clear for your beneficiaries.
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