Mortgage Insurance

Mr. John has borrowed $250,000 mortgage for his brand new house but suddenly he was a victim of a car accident and was severely disabled due to which he lost his job. Mr. John was smart enough to plan for unforeseen circumstances and take Mortgage insurance on his mortgage.

Mortgage Insurance is an insurance policy which guarantees the payment of the remainder of the loan to the lender in the event of the loss of job, untimely death or disability of the borrower. A lender to protect himself from the borrower defaulting can seek mortgage insurance. This would require the borrower to pay an additional premium towards the insurance policy at the time of closing of the loan.

The mortgage insurance basically protects the loan repayment schedule. The insurance cover will keep reducing as the amount of the loan to be paid off reduces. However a fixed premium has to be paid throughout the duration of the loan. The premium can either be paid all at once typically during the closing of the loan or can be paid annually. An annually paid premium may save some money on the mortgage insurance if the loan is paid off before time. As soon as the loan is paid off completely the premium to be paid on the loan is also terminated. There is a loss incurred when the premium is paid all at once because of the prepayment of the premium.

It is important to pick the right kind of mortgage insurance as monthly premium will be a fixed pre-decided amount and the borrower can feel financially safe. But if a wrong policy is picked the borrower may end up high monthly premiums and it may let you down when you need it to cover your payments the most.

Another important aspect of and insurance cover over the mortgage is that it is completely tax deductible. It is now easier for homeowners to get mortgage insurance along with their mortgage than to getting another piggyback loan to pay for the insurance cover.