What is Mortgage Insurance?

Mortgage insurance may refer to a few kinds of insurance that protects the lender in a mortgage loan.

It might be mortgage life insurance, mortgage title insurance, private mortgage insurance (PMI), or another form of protection. Usually the borrower will pay the premiums for such insurances.

Mortgage insurance protects the bank or lending institution from various risks that might prevent them from being repaid for their loan. This might include the risk that a borrower will default on payments or that the borrower might die.

Private mortgage insurance (PMI) is one form of lender protection, and is usually obligatory unless the borrower puts down a 20% downpayment. Once the borrower has reached a certain loan-to-value ratio, usually 0.80, they no longer have to pay for PMI.

The Homeowners Protection Act sought to curtain abuses in the PMI industry and ensures that consumers are informed of their rights. Certain loans such as FHA loans and VA loans have mortgage insurance built into them. Life insurance might be level term or decreasing term, but decreasing term is used less frequently than in the past, perhaps due to more competitive level term premiums.

The lender will have the life policy “assigned” to them, meaning that any remaining balance due will be paid by the life policy if the insured borrower dies. Consumers can use any life insurance company for this purpose, but often there is a licensed life insurance agent in the bank.

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