Mortgage Insurance
Mortgage Insurance
In mortgage insurance the lender gets a protection in case of any default by the borrower. Don’t confuse yourself with mortgage life insurance, which provides coverage against borrower’s death, or damage from fire, flood or any other disaster. Mortgage insurance can benefit home buyers. First time home buyers can pay low down payment because they have taken mortgage insurance. If home buyers keep buying house again then they can pay low down payment and gain tax advantage. The money that you would have used for down payment can be used for investments, moving costs or other expenses.
Borrower generally pays 20% down payment of the home purchase price to the lender if they do not take mortgage insurance. But if Mortgage insurance is taken, the borrower has to pay only 5 to 10 percent of down payment to lender. A low down payment also allows borrowers to purchase more home than they might otherwise be able to afford. If the borrower does not take mortgage insurance, then the borrower has to pay $10,000 for the required minimum 20 % down payment for the home value of $50,000. With mortgage insurance, the borrower will make a down payment of only 10 percent and purchase a $100,000 home. With mortgage insurance, borrowers can increase buying power, put less money and purchase a home sooner.
Borrower pays to the mortgage insurance on a monthly basis including principal and interest payments that are made on the loan. The lender then transfers these premium payments to the mortgage insurance company.
Borrower generally pays for mortgage insurance, usually as part of the monthly house payment. There are many payment options like monthly payments, annual payments and programs that require no cash from the borrower at closing for mortgage insurance.
Mortgage insurance is suitable for various loan types like fixed rate, 30, 25 and 15 year loan and many adjustable rate mortgages. Your lender will find out which plan is suitable for you and will make all the arrangements for obtaining insurance from the mortgage insurance company.
Mortgage  insurance can benefit both lender and borrower as it provides a level of security. With mortgage insurance if the borrower defaults then the lender can keep the title of the property and policy amount. With mortgage insurance the down payment will be significantly less. But, without mortgage insurance, the down payment will be more. Both the borrower and lender can benefit from mortgage insurance.
