What is Mortgage Insurance?
Mortgage insurance protects the lender and investor, or owner of the loan, against loss if the borrower defaults in their repayment of the loan. This type of insurance is typically required on loans where the borrower makes a down payment of less than 20 percent. Without the added protection of mortgage insurance, most lenders would not be willing to make loans to borrowers with small down payments. Any premiums collected for the payment of mortgage insurance on your loan are remitted to the company or agency providing the insurance coverage. On FHA loans, mortgage insurance is provided by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development. The mortgage insurance on conventional loans is typically referred to as PMI, or Private Mortgage Insurance. This type of mortgage insurance coverage is provided by private companies. As stated above, both PMI and FHA Mortgage Insurance protect the investor who owns the loan in the event of a de
Although there are many different types of mortgage insurance plans, the most common type of mortgage insurance pays a designated beneficiary (usually a spouse) a lump sum of life insurance in the event the homeowner were to pass away. This allows the designated beneficiary to “pay off” the existing balance on the mortgage. The proceeds on this type of mortgage protection insurance are usually paid tax free to the beneficiary. These plans generally have a level premium and are designated for a specific term such as 20 years or 30 years. They normally are not very expensive and the protection they offer can give peace of mind to homeowners. Find out how mortgage insurance can protect your home and family today.
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%. Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
