Mortgage Insurance: Protecting Both Panels

Mortgage InsuranceMortgage is a common term in housing and investments. In layman’s words, it is a debt instrument that is protected by a real-estate collateral. This secures the lender in case the borrower is unable to pay the debt. Individuals and businesses venture in mortgage to purchase big properties without having to shell out the entire amount of property at once. The most common scenario is when a buyer pledges his house to the bank and regain full control upon full payment. But, what is mortgage insurance and how does it benefit homeowners when policy states benefits majorly for lenders?

Mortgage Insurance

Mortgage is already a complex real-estate term. Put the word “insurance” beside it and it could simply alienate a normal person. Lenders require mortgage insurance to protect them in the event that the borrower is unable to pay the debt for whatever reason. A borrower seldom can choose the insurance provider. Mortgage insurance is required usually when a borrower put an upfront payment less than 20% of the actual full amount of the property.

Property is Illiquid

In the event that you lose your job and can no longer pay for the house, the instant option you can think of is to sell the house. But selling a house is not like selling finger foods on the street. It is very rare that you can find a buyer that can pay you a million dollars in cold cash in an instant. It could be your lucky day when you come across this kind of buyer. So, while you are still waiting for your potential buyer’s loan to be released, the mortgage insurance will be the one paying your lender. Those who are self-employed or the only breadwinner in the family, it is advisable to get a mortgage insurance.

Lower Premiums

Because of specific coverage, premiums for mortgage insurance are relatively low compared to other types of insurances such as life insurance. The latter having wider coverage will most likely translate to higher premiums. The former’s insurance premiums range from 20 to 30%. Experts advise that if the provider’s quotation matches that of your life insurance, it is best for you to decline the mortgage loan.

 

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