Mortgage insurance fills the gap between the standard requirement of 20% down and an amount the borrower can more easily afford to put down on a purchase. Mortgage insurance is only needed if any one loan you have is for more than 80% of the value of your home. In This case you will be required by the bank to have PMI which will be discuss in further later. If a borrower has less than the 20% down payment needed to avoid a mortgage insurance requirement, they might be able to make use of a second mortgage (sometimes referred to as a "piggy-back loan") to make up the difference. Mortgage Protection Insurance is now considered a tax deduction.
Mortgage
Mortgage protection insurance is essentially a life insurance policy designed to pay off your mortgage in case something happens to you or your spouse. It is insurance to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. The average costs of mortgage insurance premiums vary, but typically they fall between one-half and one percent of the loan amount, depending on the size of the down payment and loan specifics. PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. For non-conforming mortgages, the lender may designate mortgage loans as "high risk.
PMI
A new federal law, The Homeowner's Protection Act (HPA) of 1998, requires lenders or servicers to provide certain disclosures concerning PMI for loans secured by the consumer's primary residence obtained on or after July 29, 1999. PMI allows borrowers to obtain a mortgage without having to provide 20% down payment, by covering the lender for the added risk of a high loan-to-value (LTV) mortgage. PMI protects the lender if you default on the loan. The annual cost of PMI varies and is expressed in terms of the total loan value in most cases, depending on the loan term, loan type, proportion of the total home value that is financed, the coverage amount, and the frequency of premium payments (monthly, annual, or single).
There are Government loan products that also include a Mortgage Insurance Premium (MIP), essentially the government equivalent of PMI. If you are a homeowner, you will want to be aware of a new law that establishes rights for homeowners and rules for lenders regarding private mortgage insurance (PMI) cancellation. So, you don't like the idea of making those extra mortgage insurance payments. Without a doubt, private mortgage insurance has proven invaluable for families trying to attain the American dream of homeownership.
Alan provides information about Mortgage Protection Insurance through his website on Mortgage Disability Insurance
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