Purchasing a home is important financial decision, and it is important to do everything to meet the terms of our mortgage. To deal with financial situations that may arise unexpectedly, it is worth to take out mortgage insurance. Below is all what you need to know about mortgage insurance.
What is Mortgage Insurance?
Like any insurance policy, mortgage insurance helps us plan for the future and provides us with options in case we can t make regular loan payments. Mortgage insurance is available in two different formats geared toward very different purposes.
First type of insurance protects the lender by making payments on the mortgage if the borrower can t. When homeowners purchase this type uf policy, it typically costs a small percentage of the base home loan, and borrowers pay a monthly premium.
Homeowners also have the option to purchase mortgage life insurance. This type of policy insures our mortgage in case we pass away or develop a major disability.
When Mortgage Insurance Is Required
Depending on the type of policy we are considering and the terms of our loan, our lender may require mortgage insurance.
Is Mortgage Insurance a Good Idea?
How much is mortgage insurance? It costs so much that many experts believe these policies are a bad idea. Private Mortgage Insurance costs around one 1 percent of the loan.
Many people also caution against purchasing mortgage life insurance. Although we will certainly want to protect our family and our property in the event of a death or disability, a mortgage life insurance policy does not offer much flexibility. Instead, many experts advise homeowners to pursue standard life insurance policies for these purposes.
How to Get Rid of Mortgage Insurance
If we do purchase a mortgage life insurance policy but no longer want to keep it, we may simply be able to cancel it. Getting rid of Private Mortgage Insurance, however, takes time. Once we have built up 20 percent equity in our home, we have the option to call our lender and cancel Private Mortgage Insurance. If we do not take action, the policy will simply fall off the loan once you have reached 22 percent equity, and we will no longer be responsible for Private Mortgage Insurance payments.