Mortgage insurance

Template:Globalize/USA Mortgage Life Insurance refers to an insurance policy that guarantees repayment of a mortgage loan in the event of death or, possibly, disability of the mortgagor. Private Mortgage Insurance (PMI) refers to protection for the lender in the event of default, usually covering a portion of the amount borrowed. There are Government loan products that also include a Mortgage Insurance Premium (MIP), essentially the government equivalent of PMI.

For example, Mr. Smith obtains a mortgage loan that exceeds 80% (the typical cut-off) of his property's value and/or sale price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects their institution against his default. To obtain a mortgage loan insured by the Federal Housing Administration, Mr. Smith must pay a mortgage insurance premium (MIP) equal to 1.5 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.

Types of Mortgage Insurance

Private Mortgage Insurance (PMI)

is a default insurance on mortgage loans, provided by private insurance companies. 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. The Homeowners Protection Act of 1998 requires PMI to be canceled when the amount owed reaches a certain level, particularly when the loan balance is 78 percent of the home's purchase price. Often, PMI can be cancelled earlier by submitting a new appraisal showing that the loan balance is less than 80% of the home's value due to appreciation (this generally requires two years of on-time payments first).

Mortgagee's Title Insurance

is a policy that protects the lender from future claims to ownership of the mortgaged property. Generally required by the lender as a condition of making a mortgage. In the event of a successful ownership claim from someone other than the mortgagor, the insurance company compensates the lender for any consequent losses.

Mortgagor's Title Insurance

is a policy protecting the buyer/ owner of real property from successful claims of ownership interest to the property. The coverage usually is supplemental to a Mortgagee's Title Insurance policy, and the premium is customarily paid by the buyer.

See also

• Credit insurance
• Lenders mortgage insurance
• Canada Mortgage and Housing Corporation

External links

• Private Mortgage Insurance as a Tax Deduction from MortgageNewsDaily.com.

• Today's Rate Update: from Mortgagewallet.com.