What Is Mortgage Insurance?
Mortgage insurance is a policy that protects the titleholder or lender of a home in the event of a default on payments by the borrower due to death or any other impediment in the ability of the borrower to meet up with the contractual obligations of the mortgage.
The underlying theme in this insurance type is the responsibility and commitment to ensure that the property owner suffers no losses regardless of whatever happens.
The types of mortgage insurance include private mortgage insurance, qualified mortgage insurance premium, and mortgage title insurance.
The traditional benchmark of 20% of the purchase price on down payments is sometimes challenging for several buyers.
With mortgage insurance, it is possible to make down payments for less and still be eligible for home loans, protecting the lender in the case of default by using the payment made. In this system, the cost of the mortgage insurance is borne by the borrower. Still, it secures the lender by making payments to the lender, which are a percentage of the principal to fill in, especially if payments are discontinued voluntarily or otherwise by the borrower.
Some of the types of the mortgage insurance will be discussed below:
Private Mortgage Insurance (PMI): Here, a borrower is made to get the insurance as a precondition for a regular mortgage loan. It is arranged by the lender and provided by private insurance companies. Borrowers who make less than the required 20% down payment or are refinancing with a regular loan have equity of less than 20% of the home’s value.
Qualified Mortgage Insurance Premium (Q-MIP): They are requirements upon getting a United States Federal Housing Administration (FHA)-backed mortgage. The premium is afterward compulsorily charged regardless of the size of the down payment made.
Mortgage Title Insurance: If there are liens on a property sold and is thus, not legally owned by the lender, beneficiaries are protected against losses by this insurance type.
Mortgage Insurance Example
If a homeowner puts up their home for a mortgage and before the maturity period elapses, the borrower dies. The mortgage insurance protects the lender from suffering losses and helps him still get value for his investment.« Back to Glossary Index