What Are The Most Important and Considerable Aspects Of A Mortgage Insurance?
While the thought of having your own home may seem like an excitement booster to you, you may have to undertake lots of research and financial planning in advance to strengthen your foothold. Suppose you desperately need a mortgage of more than 80% of the total value of your home, you will have two options in that case.
The first option will direct you toward a second mortgage for the extra amount above 80%. On the other hand, the second option will advise you to purchase a mortgage insurance to reduce the amount of risk taken by the lender. The choice is completely yours.What is Mortgage Insurance Exactly?
To begin with, a brief idea about what mortgage insurance is will be of no harm, especially if you are quite new to this subject. What if a borrower fails to repay the mortgage due to some financial difficulties? When lenders lend money, they take huge risk of uncertain losses occurring from mortgage default by borrowers. So, in such a situation the lenders take the property and the mortgage insurer repays the amount to them.
For example, you wish to purchase a new home which will cost you around $120,000. So, you decide to make a down payment of 10% and go for a mortgage for the rest of the 90%, which is $108,000. In that case, the lender would ask you to buy mortgage insurance policy to get a cover against the losses caused by your mortgage default. That means you have to purchase a mortgage insurance which will cover a particular portion of the default amount.
Suppose the portion of coverage here is 25% of $108,000. Due to some unavoidable situations if you fail to repay
the mortgage and the house is also sold at loss, the insurer will pay $27,000 to the lender. Then the lender will take care of the rest of the amount.
Keeping in mind the benefits of mortgage insurance it can be said that this facility undoubtedly helps many people to fulfil the dream of owning a home. Mortgage insurance helps all those buyers who find it difficult to make a down payment of 20% of the home value while applying for a mortgage.Who has to pay the Insurance Premium?
Either the borrower or the lender may have to pay the premium of private mortgage insurance in U.S. But mostly the borrower pays for the premium.The payment mode and the insurance rate depend on the terms and conditions of the policy. Usually, you may have to make the payment monthly or annually and the insurance rate may range from 0.5% to 6% depending upon the loan amount, LTV, fixed or variable rate and the personal credit history.How to get a Mortgage Insurance?
In most of the cases, the mortgage lenders have partnership with a particular mortgage insurance company who will provide affordable and flexible payment options to you.
Apart from this, you can consult with insurance agents or brokers specialized in mortgage insurance selection. An expert and experienced broker will better guide you to select the perfect insurer as per your suitability and save your time. The option of doing online research is also not bad. Visit the websites of different mortgage insurance companies. Analyse and compare their quotes, policy terms and conditions, services etc. to find the best option for you.
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