Importance of Choosing the Right Mortgage Insurance


Even before I get into the debate on mortgage insurance, let me make it clear that mortgage insurance is different from Private Mortgage Insurance or PMI, as it is popularly known. Unlike mortgage insurance, PMI isn’t a choice, but a necessity for borrowers who cannot afford to pay the requisite 20% of the value of the house as down payment. This is geared to help the lender (and not the borrower). Thus, it’s of no concern to the borrower.

However, mortgage insurance is a matter of choice for borrowers; where glib talking salesmen manage to convince people into securing their family against unforeseen circumstances. But to decide if this is indeed required, depends on individual situations. For instance, if you aren’t really sure about the job market in your industry, or worried about your health, this insurance does make sense.

But if you’ve secured the future of your family, the money spent on these premiums is best invested elsewhere. In the event of your death, your family would be better off paying the loan amount, thanks to the money spent on those investments. Securing the house, wouldn’t be enough, because they would still need to replace your income to continue with their lives.

Besides death and redundancy, this insurance also protects you if cannot continue to work due to a long-term illness or accident.

But make sure to read the fine print before you opt for mortgage insurance. Not all insurance policies are made alike. For those looking to avail benefits from the insurance, the waiting period can be long and frustrating. Most companies require the insurer to wait for about 30 to 180 days. The payment too is covered for a limited period; usually up to 1-2 years. After that, the insurer is left on his own! Some companies do not allow people to take up insurance, when the mortgage plan is changed. There are some companies that increase premiums and reduce cover for existing policy holders.

Also make sure that you’ve calculated the premium amount required to be paid. You wouldn’t want to end up paying more than what is convenient for your budget. There are plenty of websites that provide online calculators. All that you’ve got to do is to enter the monthly income and the monthly premium. The calculator calculates the premium that a borrower can afford to pay. Besides calculating mortgage insurance, these online calculators are also useful to calculate mortgage payments, refinance etc.

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