|
Often unforeseen and unpredictable circumstances may come in the way of meeting regular mortgage payments such as unexpected loss of job, unanticipated medical expenses, etc. Mortgage protection insurance is important in such cases as it helps the borrowers to meet payments in a timely manner thereby avoiding unnecessary foreclosure or other such unpleasant occurrences. Mortgage payment protection insurance helps to protect the lender against default on the loan. This further prompts the lender to offer loans at improved terms and lower mortgage rates.
Benefits of Mortgage Protection Insurance
Mortgage protection insurance pays the monthly mortgage payments for a specified period should a borrower become unemployed or out of work due to sickness or accident, or any other unforeseen circumstances due to which he is unable to meet payments in time. Mortgage Payment Protection Insurance (MPPI) is an insurance policy that covers the borrower's mortgage payments. The insurance protects payments for about twelve months and covers all or part of the amount paid every month. It also covers mortgage-related expenses, such as bills and home insurance.
Purchasing Mortgage Payment Protection Insurance
The maximum amount of coverage on mortgage payment protection insurance should not exceed the monthly payment, though some programs pay an additional 25% to cover mortgage-related expenses. Lenders and insurers adopt certain minimum standards for mortgage payment protection insurance, so that the level of coverage offered will be adequate to meet the payments. For those taking out a mortgage for the first time, the lender may offer mortgage protection insurance as part of the package. The homebuyer may choose to accept the offer or take out the insurance from another provider. Many borrowers take out a full MPPI to cover all mortgage payments.
Many insurance companies offer different mortgage protection insurance policies. The policy is a document that is necessary to secure the loan payment to a lending institution. The quotation of the premium will depend on the rate of interest involved in the loan transaction and the term of the loan. For instance, if a person has applied for a home mortgage loan at $300,000, payable over a 15-year period at 10% rate of interest, the borrower has to pay the insurance company roughly $6000 to get the MPPI. Some insurance companies may require potential borrowers to take up a medical examination to acquire the policy. Mortgage payment protection insurance is often not necessary if the homeowner has some other coverage such as an accident or sickness coverage, income protection or critical illness insurance.
Meeting Payments Towards Mortgage Insurance Premium
The mortgage insurance premium (MIP) is a charge paid by the borrower who takes out a mortgage by paying less than 20% down payment relative to purchase price. This amount is usually added to the loan amount. The MIP is about one-half percent and has to be paid every month, either on an FHA-insured mortgage or to a private mortgage insurance company. The insurance secures the lender against incurring a loss due to borrower default. The MIP is paid upfront or on a monthly basis as part of the monthly mortgage payments. The MIP on an FHA loan is higher than a conventional mortgage. For an FHA loan, the borrower may be charged about one and one-half percent of the purchase price of the property and a renewal premium of about one-half percent in the following years. The MIP charged on the closing of a conventional mortgage is about one-half percent with a ten percent down payment and a renewal rate of three-tenths percent in the following years.
|
