Mortgage Insurance is one term you need to understand. The housing market is starting to recover, mortgage uptake is expected to rise. Interest rates for mortgage loans are relatively low. This insurance product is a big factor for many potential buyers. You may be unfamiliar with it until you start getting offers from mortgage agents. There are 10 questions you must ask your agent before signing on the dotted line!
But first, what is Mortgage Insurance?
This policy protects the lender from losses if the borrower defaults. Premiums vary depending on the size of the mortgage, the down payment, and other factors. In order to get a conventional mortgage (a mortgage not insured), borrowers typically need to make a minimum down payment of about 20%.
# 01 What is the Mortgage Insurance Premium (MIP)?
The Mortgage Insurance Premium is a fee that you will be required to pay if your down payment is less than 20%. The premiums can be financed as part of your loan.
Your mortgage agent should be able to give you an estimate of what your MIP will be. The MIP rates are set by the Federal Housing Administration, and they vary depending on the size of your mortgage, the down payment, and other factors.
For example, if you’re buying a home for $200,000, and you put down $0, your MIP could be about $225 per month. But, if you put down at least $11,000 (or five percent of the purchase price), your MIP may be reduced to about $100 per month. You can find a list of MIP rates on the HUD website. Your mortgage agent should also be able to tell you if your state offers any Mortgage Insurance Premium discounts.
#02 How long will I have to pay for mortgage insurance?
Some premiums are payable on a monthly basis, while others are paid once for the life of the loan. The answer you get will have an impact on the cash you require to set aside every month. One can also ask, when can I stop paying mortgage insurance? You can stop when your property no longer serves as security for the mortgage and the value of your property is much higher than the mortgage loan. You can also ask about you can save on insurance premiums.
#03 What is covered in mortgage insurance?
Mortgage insurance is simply a life cover that will pay off the outstanding debt in the event of the natural death of the insured. It can also cover the event of permanent disability, loss of employment, or critical illness. You need to discuss the details with your insurance advisor.
#04 How does it affect the Interest Rate?
Mortgage Insurance Premium doesn’t directly affect your interest rate. But it can impact how much you’ll pay in total monthly mortgage payments. If you have a low down payment, this may increase your overall loan costs and result in higher monthly payments.
#05 What is the cancellation Policy?
What will happen when you want to cancel the policy? You will need to know the Insurance company policy. The cancellation notice should be in writing.
#06 Is it a requirement by my lender?
This insurance helps protect the lender in case you are unable to make your mortgage payments and default on the loan. Even if you have a large down payment, it may still be a good idea to buy the policy. Mortgage loan providers need to be very sure about the low risk of default. You should always endeavor to offer this comfort.
#07 What are the different types of Mortgage Insurance?
There are two types of Mortgage Insurance:
-Private Mortgage Insurance (PMI)
-FHA Mortgage Insurance
The main difference between the two is that PMI is usually required when you have a down payment of less than 20%.FHA mortgage insurance premium (MIP) is different. In addition to Private Mortgage Insurance, the borrower pays an additional premium to protect the bank further in case of default.
#08 Can I get refund upon cancelation of the policy?
Mortgage insurance premiums are non-refundable, even if you cancel the policy before it expires.
#09 Do I get a contract document?
Yes, you will receive a contract document. Your relationship with the insurance company is contractual, that is, both parties need to sign. Please take time to read it.
# 10 Is there any similarity between Mortgage Insurance and Life insurance?
The answer is yes and no. Yes because that they both cover life of the insures person. No because in event of calamity, in life insurance the claim is paid to the named beneficiary. In Mortgage policy, the claim is paid to the lender to the relief of your family.
Read about Home Insurance
In conclusion, Mortgage Insurance is a necessary safeguard for both homeowners and lenders. It protects the lender in case of default and helps the homeowner maintain their home in the event of tragedy or disability.
We have not been able to cover the topic in detail but have tried to paint a fair picture. Mortgage Insurance is a serious business, and you must always seek professional advice.