Mortgage Insurance Why You Should Buy

Mortgage insurance is one of the few types of insurance products that doesn't underwrite it's premiums based on individual default risk, rather the size of the borrower's mortgage and the amount of money put down determine the mortgage insurance quote. Mortgage insurance is an insurance policy that guarantees that a mortgage will be paid in the event of the mortgagee’s death, default, or disability. Mortgage insurance is insurance protection that “kicks in” should you ever find yourself unable to make your mortgage payments because you are out of work or unable to earn an income due to health, disease or illness. Mortgage insurance is also arranged by the lender, not the borrower, although the borrower pays for it.

The problem with private mortgage insurance is that it raises your monthly payment and, unlike the interest on a traditional mortgage, PMI is not tax deductible. It's important to understand that the primary and only real purpose for mortgage insurance is to protect your lender—not you. Private mortgage insurance is typically required of a buyer who wants a fixed-rate mortgage but has a down payment of less than 20 percent. Because of this, many people think the idea of private mortgage insurance stinks, but if you don't have a 20% down payment, private mortgage insurance is a God-send.

Getting a property mortgage insurance is also a great way of reducing down payment for your home. The big question with private mortgage insurance is knowing where the money goes to, since it does not go towards paying off the home loan. The borrower could see lower interest rates for a home loan, but after the private mortgage insurance is added on, the mortgage insurance premium may not be saving any money in the long run. Regardless of your financial situation, mortgage insurance is usually required when the loan amount is greater than 80% of the value of the property you intend to purchase.

Also known as mortgage payment protection, mortgage insurance is suggested for anyone who has a standard style mortgage as it replaces your payments if you are unable to meet your mortgage due to injury or long term illness. The idea behind mortgage insurance is simply that if something happens to you or your spouse then your loan will be paid off which is good news for your family and the bank. An advantage of mortgage insurance is that it often helps borrowers to be able to buy a house with a zero percent, five percent, or ten percent cash down payment.

The average costs of mortgage insurance premiums vary, but typically they fall between one-half and one percent of the loan amount, depending on the size of the down payment and loan specifics.