Mortgage insurance is a kind of insurance policy that gives mortgage lenders a financial guaranty against loss of finance. In case the borrower defaults on mortgage repayment, the mortgage lender claims title of the mortgaged property.
If you are planning to buy a new home, you can buy a homeowner's mortgage insurance, it can greatly benefit you. Mortgage insurance helps you become homeowners soon. The insurance radically increases your purchasing capacity. First time home buyers can get low down payment insurance, so that they can afford to buy their first home.
Without the guaranty of mortgage insurance, usually, lenders require you to make down payments to the extent of at least 20% of the price of the home you purchase. This down payment assures the lender that as a borrower you are committed to the investment and will pay the monthly loan obligations to keep your property protected. With the guaranty of mortgage insurance many lenders are ready to provide loan with 5% - 10 % of down payment.
A low down payment implies that you can afford to put more money in your investment and purchase an expensive house than you would have been unable to afford otherwise. With lower down payment you can use the money saved for decorating your home, make investments or buy a car. In short, Mortgage insurance broadens your options, as a borrower.
Often many homeowners fail to repay their monthly mortgage payments due to various reasons such as loss of employment, sudden demise of the bread earner of the family, or an accident. Mortgage insurance is a partnership, wherein, if the borrower cannot pay back the loan money, the insurance company can provide protection to a certain extent.
The mortgage loan repayment stands to cease depending on the mortgage terms you have agreed on. However, there are certain guidelines that are applicable universally. If you have a conventional mortgage loan, you must pay the monthly loan payment for the first year of your loan, when you repay the mortgage insurance amount up to 80% of the original purchase rate or value of your property. Once you repay the amount you can give a written request to the lender to ward-off the insurance.
Many people consider mortgage load as an unnecessary monthly cost. The law allows the homeowners to write this cost off their taxes. Thus, mortgage insurance increase the borrower's purchasing power. It allows them to put down less money and be a home owner soon.