Mortgage Loan Insurance


Like every other huge investment even mortgage loans require insurance. Mortgage loan insurance is typically sought by the lenders to secure their payments in cases where the buyers make less then 20 percent down payment of the original cost. The purpose of obtaining this loan is to protect themselves from future non payment or default of payment on borrower's part. This Insurance guarantees the lenders money and also helps the borrowers to obtain loans on lesser down payment. The minimum limit for down payment is 5 percent which is quite below the original 20 percent, and hence is welcomed by both the parties involved.

To secure a mortgage loan Insurance, lender pays the premium as in case of any other Insurance, however evidently this insurance premium amount is ultimately transferred to the customer. The premium is decided on the bases of original purchase price of the home which is being financed by the mortgage. This premium can be paid in two ways. One is to pay it in lump sum and other is that it can be added in borrower's mortgage and paid along with the instalments. Second option is most common in practice as borrowers prefer the division of amount over a certain time period.

Mortgage loan Insurance is often confused with mortgage life Insurance. However we should know that the two are different, mortgage life Insurance is like any other life Insurance policy. It guarantees that in case of sudden demise of customer before the repayment tenure the remaining mortgage would not be burdened to the estate.

As already discussed mostly it is lender who requires mortgage loan Insurance to secure their mortgage. However there are many acts in U.S. which prohibits the issue of mortgage loans without a mortgage loan insurance. Specified one of them is 'Canadian Bank Act', it prohibits the mortgage loan granted by all federal financing bodies without Insurance, for all loans which exceed 80% of the total loan amount, in other words where the down payment is less than 20 percent.

Mortgage Loan Insurance has opened several doors for both buyers and lenders. Lenders now are more open for issuing mortgage loans to more and more borrowers as their loan amount is secured twice, one with the mortgage (house) and two with the Insurance bought. Similarly, mortgage loan Insurance provides borrowers also with lot of benefits, primary being that of low down payment. Since the customer is allowed to make down payment as low as 5 percent, even borrowers who don't have considerable accumulated money are also coming forward for investment. This surely has given uplift in various hosing schemes.

Though the premium amount is ultimately borne by the borrower, however the option of monthly payment gives them enough flexibility and comfort. The hence saved down payment amount can also be put for this use of paying the extra premium amount, at the same time buyer is also secure in case of any circumstantial default as the mortgage loan Insurance does not let his credentials get affected.