What is Mortgage Insurance?
Contrary to what many borrowers may think, Mortgage Insurance (MI) DOES NOT protect the borrower should they be unable to make mortgage repayments. Instead, (MI) protects the lender from any losses resulting in the sale of a property due to default by the borrower. (MI) premiums are payable by the borrower when the amount borrowed is above a certain percentage, usually 80% of the lender’s valuation of the property. Some lenders will allow you to add the (MI) premium to your home loan whilst others require you to pay it up-front.
If you downpayment or equity is less than twenty percent, you will be required to pay for mortgage insurance. Mortgage insurance insures the lender against default and foreclosure. If the borrower default on his or her payments and the property is foreclosed, the mortgage insurance company must repay the lender all or a portion of its losses. Do not confuse “mortgage insurance” with “mortgage life insurance”. Mortgage life insurance is an optional life insurance policy that you can buy from your insurance agent. It pays off your mortgage in the event of your death.
