What Does Mortgage Insurance Cover?
Mortgage insurance protects lenders in the event a borrower defaults on a mortgage loan. Both public and private mortgage insurance policies are available. Mortgage insurance requirements may vary by lender, borrower credit score and the amount of the loan.
Other People Are Reading
-
Private Mortgage Insurance
-
When a homebuyer purchases a home with a down payment of less than 20 percent of the home value, he typically needs to purchase private mortgage insurance (PMI). Interest rates may fluctuate depending on the market and other financial factors, but they're usually between 1.5 percent and 6 percent of the principal of the loan. Borrowers can select from different payment plans, including monthly and annual payments.
Lender-Paid Private Mortgage Insurance
-
In certain situations, the lender pays for private mortgage insurance. When this happens, the cost of the insurance may be incorporated into the borrower's interest rates. This type of insurance shouldn't be mixed up with homeowner's insurance, which covers property in the event of disaster or theft. It should also not be mistaken for mortgage life insurance, which protects homeowners in the event of death or disability.
-
Benefits
-
Mortgage insurance can help people who don't have the traditional 20 percent or larger down payment buy a home. At the same time, it protects the lender from losses due to mortgage default and foreclosure. When a borrower doesn't have to invest the full 20 percent, it provides more liquid cash on hand to use for other debt, home improvements and other needs.
Cancellation
-
You don't have to carry mortgage insurance indefinitely. As of November 2010, federal law requires all private mortgage insurance coverage on loans received on or after July 29, 1999, to automatically cease when escrow in the home meets 78 percent of the original value of the house.
Refunds
-
Mortgage insurance plans are usually nonrefundable to save costs for the borrower, especially if the premiums are paid every month. There are instances when mortgage insurance premiums that have been paid annually or in a lump sum can be partially refunded when the policy is cancelled.
-
