12 Feb
Many first time home buyers have heard the term “mortgage insurance” but may not understand what it is and why it’s necessary to have. There are two main kinds of insurance related to your mortgage: mortgage default insurance and mortgage protection insurance. Mortgage default insurance is designed to protect the lender while mortgage protection insurance is designed to protect the homeowner and their family. It’s important to understand how these different types of mortgage insurance policies can help you get the loan you need and protect you against any unexpected financial challenges.
Let’s discuss mortgage default insurance! Mortgage default insurance does not actually protect the homeowner, but rather, protects the lender and possible investors from the homeowner defaulting on their mortgage. But how does this help you, the home buyer? Many home buyers, especially first-timers, find that they cannot afford the down payment to purchase a home. This can be very discouraging, especially if you think you’ve found your perfect home and can afford the mortgage payments but haven’t been able to save for a sizeable down payment.
By protecting the lender against the buyer from defaulting on a mortgage, mortgage insurance actually helps create more opportunities for the buyer, or borrower. If you have mortgage insurance, the lender is assured that they will be protected even if you default on your mortgage. This means that they will be more likely to give you your loan, quicker, and often for as little as 5% of the down payment.
The cost of mortgage insurance depends on the type of mortgage you’re applying for, and the amount of the down payment. Your mortgage professional, or lender will be able to provide you with the exact cost, as every premium will vary depending on your situation.
Another kind of insurance you may want when taking out a mortgage is mortgage protection insurance. While mortgage default insurance covers payments in the case of default or foreclosure, mortgage protection insurance will cover your mortgage payments should you become ill or injured and unable to work, lose your job, or become permanently disabled. You can also get mortgage protection insurance bundled in with life insurance so that in the case of your death, your mortgage payments will continue to be made.
Mortgage protection insurance not only protects you from being unable to make your payments and falling into debt or bankruptcy, it also protects your loved ones. In the event of injury, illness, or death, the last thing you want your family to be worrying about is making mortgage payments on time. By ensuring mortgage protection insurance is in place, you can have peace of mind knowing that in a tragic event, the payments will be taken care of.
A benefit of mortgage protection insurance is that acceptance is usually guaranteed after application. This can be really helpful for those who typically have trouble being insured whether due to a preexisting health condition, or a high-risk job. Premiums for mortgage protection insurance will depend on factors such as your age, which plan you get, your occupation, and the amount of your mortgage payments.
Having mortgage insurance will generally make you a more favourable candidate for lenders. If you are concerned about your application, you should definitely speak to a mortgage professional about mortgage insurance and whether it can help boost your application. While mortgage insurance is very helpful and even necessary for the first time home buyer, there are some cases when mortgage insurance may not be the best option. Each case is unique so you should definitely seek the advice of a mortgage professional in this case.
Mortgage insurance should not be confused with property or homeowner’s insurance, which protects your home and possessions in case of theft, fire, water damage, or other disaster. Homeowner’s insurance is another cost associated with home ownership that is, naturally, very important to have, but is separate from mortgage default or mortgage protection insurance.
In short, mortgage insurance is a benefit to the homeowner and homebuyer in a wide variety of ways, especially when it comes to expanding your buying opportunities, and giving you peace of mind about your mortgage should anything unexpected occur. To find out more about your financial buying power, insurance options, and what kind of premiums to expect, it’s best to discuss mortgage insurance with a mortgage professional.