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A Brief Introduction To Homeowners Mortgage Insurance

[May 18, 2008.]

 

With so many financial obligations that must be met by the average person, it is not surprising that many fail to meet one or more of these obligations.  If you fail to pay your mortgage payment, there can be serious consequences not the least of which is potentially losing your house.  What are some reasons? 

Often tragic or unforeseen circumstances hinder ones efforts to pay mortgage payments in a timely manner.  This could mean loss of employment, the death of one of the family providers, or even personal injuries that have led to hospital stay and loss of income.  It is because these types of situations are real possibilities that is may be a wise idea to have some sort of homeowner's mortgage insurance.  This type of insurance provides lender security, meaning that is protects the lender from any of the risks they have taken on by offering you a mortgage loan in the first place.  This means that if you default on your loan the lender is covered.

Most of the time, mortgage insurance is a form of partnership that exists between the lender and an insurance company by which the risk is divided among them.  When a borrower is unable to pay on their loan amount, each has certain protections that are guaranteed.

Do not confuse homeowner's mortgage insurance with mortgage life insurance.  This second insurance is entirely different.  The borrower is the object of the coverage rather than the borrower with this form of insurance.  It is a life insurance policy that covers the expenses associated with the mortgage.  If the policyholder should happen to die, the burden of repayment is taken care of by the policy coverage.

Homeowner's mortgage insurance has one serious benefit for the borrower too.  It is the means by which they are able to obtain a mortgage in the first place, in many cases.  This is because the risks are assumed by the insurance company rather than the lender.   This makes the lender more apt to offer a particular loan.  Also, if a person cannot pay the required 20% down payment, homeowner's mortgage insurance can help reduced that rate significantly so that you can pay as little as 3-5% up front.

Probably the biggest disadvantage of homeowner's mortgage insurance has to deal with the added costs.  If you do not have the ability to pay a typical down payment up front, you will be required to purchase mortgage insurance coverage.  Mortgage insurance is added to your existing monthly payments in the form of premiums that can be very costly additions when you are already paying substantial monthly payments on the mortgage loan in the first place.

Most people who obtain this type of insurance do so out of necessity.  Once they find the means to meet the requirements to eliminate homeowner's mortgage insurance, they will do so.  This will mean accumulating the correct amount of equity in your home, taking on a second mortgage, or some other measure to meet federal lending requirements.

 

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