Buying their own house is a dream everyone cherishes and this very dream does not come cheap. A home is a costly affair and most often you will have the savings to pay for it, else you will seek the help of a loan or other factors also come into play. While seeking a loan is chosen by many, the bank has strict rules and procedures which decide whether to give away the loan. In these cases mortgage insurance comes to your rescue.
What is mortgage insurance?
If you donβt have enough cash to make a down payment of 20% or less for the purchase of your new home, then you will have to pay for mortgage insurance.Mortgage insurance reduces the risk to the lender who makes the loan available to you and qualifies you for a loan which might otherwise have to face rejection.The insurance amount varies depending on the type of mortgage and various other factors.
How to pay mortgage insurance?
Mortgage insurance is only a protection to the lender in case you fail to make the payment on time and not the insured. This will also increase the cost of your loan and if you are to pay mortgage insurance that will also be included in your monthly payment to the lender. The borrower or the insured also have a flexible option to pay a large amount of money upfront rather than the monthly payment.
Why is mortgage insurance essential?
Most first-time home buyers will not have enough cash to pay the 20 % down payment upon which they rely on mortgage insurance providers. Without mortgage insurance, if you fall behind in making a payment you home will be in jeopardy but with this insurance, your home is in safe hands.
Mortgage insurance only costs a small percentage compared to your monthly loan amount.The premium for mortgage insurance vary depending on the loan amount and the interest rate; while in some years they are tax deductible while in some years they are not. While it is essential that you need a loan from the bank, securing a mortgage insurance will double your chances of getting a loan, and in those months if you are unable to pay the monthly amount, the mortgage insurance will come in handy.
What happens if you have paid off your mortgage insurance?
Once you have paid off your loan or it reaches 80% of the original value of the home, you are eligible to cancel your mortgage insurance.Make sure you get a written notification or certificate from your lender upon closing of the mortgage insurance which states that there is mortgage insurance on your loan and you wish to cancel the same under certain conditions or upon completion.
