Home Mortgage Insurance 0
Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.
Mortgage insurance can refer to two types of insurance you may need to purchase when you purchase a home. The first type is usually voluntary and is a type of life insurance policy. If you are permanently disabled or die, this insurance policy kicks in to completely pay your mortgage, thus leaving you or survivors without the obligation of paying for a mortgage.
If you have taken out a residential mortgage lately, you probably have a home mortgage insurance policy along with it. Most lenders now require this type of insurance to protect themselves unless you can come up with a cash down payment of 20 percent of the home’s value. One common way to get around this requirement is to obtain a second loan for 20 percent of the value and use those funds as the down payment to the first lender.
Home mortgage insurance protects a lender from losses that may occur if the borrower defaults on his mortgage. The exact time period before a claim is filed depends on the foreclosure laws in your state. Once the grace period is over and the lender forecloses on the mortgage, the lender can then file a claim against the borrower’s mortgage insurance policy and receive reimbursement up to the maximum limit of the policy.
While the borrower is responsible for paying the monthly mortgage insurance premiums, the lender is the primary beneficiary of the policy. However, the availability of home mortgage insurance has opened up opportunities for homeowners who would not otherwise have been able to obtain a loan. The insurance policy reduces the lender’s risk to a point where it is acceptable to issue mortgages without requiring a large down payment.
There are different ways in which mortgage insurance may be attached to a loan. The total, usually about 1.5% of the value of the loan may be added by the lending agency and be part of the monthly payment, or alternately, borrowers can pay an additional premium each month on top of their monthly payment. Several changes in laws have changed the way personal mortgage insurance (PMI)s are paid for. For instance, borrowers are only required to carry PMI, according to the Homeowners Protection Act of 1988, until they have at least 20% equity in the home. If you put down 10% upfront, you’d only need to carry PMI until you had another 10% equity in the home, so your overall total amount paid in mortgage insurance could be greatly reduced over time.
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI’s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.
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