Private mortgage insurance (PMI) is a type of insurance you may be required to pay for when you take out a conventional home loan.
If you’re buying a home, lenders require PMI as part of a conventional loan to protect them in case you end up in foreclosure. The insurance protects the lender for at least some of the shortfall if the home is sold in foreclosure for less than the outstanding amount of the mortgage. PMI is generally required if you refinance your mortgage with less than 20 percent equity. The insurance can be either public or private depending upon the insurer.
PMI is a layer of protection for lenders, but an added expense for you as a borrower. Conventional loans, which are any loans not backed by the federal government, are the most popular type of mortgages.
What is mortgage protection insurance?
So who's looking after your interests? As an income earner, you would want to make sure that your own individual mortgage protection insurance policy replaces your income and takes care of your family, should anything happen to you.
Mortgage protection insurance (MPI) protects homeowners if a health issue arises and they become disabled, or a job loss is lengthy. In the worst-case scenario, this type of coverage can pay off the balance of the mortgage if you die.
Mortgage protection insurance, or MPI, is another kind of life insurance. The cost of the monthly premium varies, depending on the amount of the loan and the individual’s age and health. Some MPI policies cover a mortgage if there is a disability, and those premiums depend on the borrower’s occupation.
If you die with a mortgage balance and have a mortgage protection insurance policy, your insurer pays the remainder of your loan balance directly to the lender. Any heirs, such as a spouse or children, won’t have to worry about making future mortgage payments or losing the home.
MPI policies that pay a benefit for a job loss or a disability typically cover your mortgage payments for a year or two. The policy will spell out if there is a mandatory waiting period before payments are made. These MPI policies generally cover the principal and interest portion of a mortgage payment and not other fees like homeowners association dues, property taxes or homeowners insurance. You may be able to add a contract rider, though, to cover these expenses.
Now there's a way you can make sure that your family stays in the home you've worked hard to provide for them no matter what the future holds. With mortgage protection insurance you can design a safety net that could be used to pay your mortgage payments after your death or even pay off the mortgage entirely.
At Jennifer Lang Financial Services, we help protect families everyday. Contact us for a customized mortgage protection plan today.