Answers to Important Questions about Mortgage Insurance. Don't Mistake PMI premiums for Mortgage Insurance premiums.
PMI on your loan is Private Mortgage Insurance. to indemnify your Lender should you fail to make your mortgage payments as agreed. PMI helps you into home ownership with little, or no money down. It is usually required by your lender if the loan on your home will exceed 80% of the appraised value. It does not prevent the loss of your home from foreclosure and does not pay off your mortgage in the event of your death or disability.
Government Home Guaranty services like VA Loan programs, or FHA loan programs are also programs that help you into home ownership with little, or no money down. They do not protect against the loss of the home when the loan cannot be repaid because of the death, or disability of the homeowner.
Don't mistake accident only coverage for "Mortgage Insurance". If you applied by mail, you most likely have bought an accident (only) mortgage protection. This type of coverage does not pay off your mortgage in the event of death by natural causes, like Cancer, Heart Disease, Diabetes, Kidney failure, Stroke, Aids, etc. Coverage for death by natural causes would require a life insurance application in which you were asked to answer health questions, usually witnessed by a licensed life insurance agent, or Paramedical nurse.
Q: Which type of term life insurance is best for Mortgage insurance protection, Level Term insurance, or Decreasing Term insurance?
A: In the past, decreasing term insurance was often used for Mortgage Insurance because the premiums remained level throughout the term of the mortgage, while the life insurance protection decreased along with the mortgage balance. This worked fine as long as the term insurance decreased at the same interest rate as the Mortgage balance. However, if the mortgage balance increased because it was refinanced, or a second mortgage was taken out, or the interest rate increased (as with an adjustable rate mortgage), or a new home with a new mortgage balance was purchased, the decreasing term would no longer provide adequate protection. In addition, if the home owner's health, or age has changed from the original term insurance issue date, purchasing a new life insurance policy would require requalifying at a higher premium. If a serious health condition has occured, purchasing the additional coverage necessary may not be possible.
To protect against those contingencies, purchasing a level term insurance policy to cover your mortgage insurance needs may be the best solution.
Q: I Think I'm already paying for Mortgage insurance coverage, How do I know for sure if I'm covered?
A: The best way to be sure, is to review your policy carefully. If you still are not sure of your coverage, ask your Life insurance Agent to review it with you. If you never received a policy, or lost your policy, make sure you request a duplicate, Review it carefully and keep it in a safe place.
Often home owners mistakenly believe their Homeowners insurance affords mortgage insurance protection. Or that the premiums they are paying for PMI affords mortgage life insurance protection.
Q: Which coverage is more important to maintain, Home Owners Insurance, or Mortgage Life Insurance?
A: It is very important that you maintain both of these types of coverage.
Homeowners insurance protects you and your lender, against the financial cost of repairing, or replacing your home, when the physical damage is caused by Fire, Windstorm, Hail, Vandalism, etc.
Your lender requires proof that you have this type of insurance coverage on your home before they will make you a home loan and requires that you maintain this coverage until you have repaid the loan,
Mortgage Insurance, also known as Home Loan Insurance, or Mortgage cancellation Life Insurance, can protect your family against the possible Loss of their home through foreclosure, or a forced Sale when one, or both of the homeowners dies before repaying the home loan.
Without Mortgage Insurance, often the surviving spouse does not have the income to repay the loan.
Because mortgage loans are usually for a specific (term) or duration, (ie.15 years, 20 years, or 30 years.) a renewable Term life insurance policy is often used for Mortgage protection because it requires less premium than an interest sensitive whole life insurance, or universal life insurance policy. Some people prefer to pay the higher premium because of the potential cash value in an interest sensitive whole life, or universal life policy. A less expensive alternative may be to add a guaranteed return of premium cash value rider to your mortgage term policy. Regardless of your preference, obtaining some type of mortgage insurance protection is very important.
Statistical information obtained from *Mortgage Bankers Quarterly, revealed that up to 70% of all foreclosures in the United states, and up to 85% of all forced sales were the direct result of the death or disability of an uninsured, or underinsured homeowner.
Q: What are the chances of losing my home by fire?
A: The chances are One out of every 100.
Q: What are the chances that I won't live long enough to repay my mortgage?
A: Even though, for most people, the cost of mortgage Life insurance is less than the cost of their homeowners insurance, The statistical risk of dying is much greater. The risk depends on your age at the time you obtained your mortgage. Statistical information obtained from *NAIC Commissioners Standard Ordinary Mortality Tables reveal that the chances of death before completing a 30 year mortgage are:
Age 50: Almost Certain
Age 40: one out of 2
Age 30: One out of 4
