Mortgage Protection Insurance with Cliffco Mortgage
If you’re buying a home you’re going to be hit with a barrage of information, paperwork, and options. You’ve probably heard about different types of loans available to prospective homeowners, and different kinds of mortgages. You’ve also probably heard of different insurance options that are relevant to home buyers. One concept you might have heard something about is mortgage protection insurance. If you’re in the market for a home, you may be wondering if this is something you need.
At Cliffco Mortgage Bankers we deal with all types of loans and issues related to mortgages and we want to give you the basics, types of mortgage protection insurance and let you know the pros and cons of these products.
What is Mortgage Protection Insurance?
According to CNN, there are two types of mortgage protection insurance. One type is called private mortgage insurance or PMI. This is a product that most lenders require home buyers to purchase if they’re putting up a down payment of 20 percent or less. It’s meant to protect the insurer if the buyer defaults on the home loan and the lender is unable to resell it.
The other type of mortgage protection insurance is called Mortgage Life insurance. According to NerdWallet, it’s a way for families to pay off mortgages if the family breadwinner dies. The product is often sold through banks and mortgage lenders and the payoff doesn’t go to the homeowner’s family, it goes directly to the mortgage lender.
Ways to Avoid PMI
If you’re a home buyer and you’re unable to come up with the 20 percent you need for a down payment, there are still ways to avoid buying private mortgage insurance. If you’ve served in the United States military, you can qualify for a VA loan, which does not require you to buy PMI. You should also be aware of the Federal Homeowners Protection Act of 1998, which automatically requires that PMI be canceled when the balance on your loan drops to 78 percent of the original value of the property. Homeowners can request cancellation earlier, once the balance reaches 80 percent, and lenders can grant this.
Another way to avoid PMI is what’s called the piggyback mortgage option. This is a second mortgage loan that covers part of the 20 percent. You would have a higher interest rate and a shorter term for the loan, according to the San Francisco Chronicle. Sometimes, lenders pick up some of the costs of PMI, by charging a higher rate on the loan.
Pros and Cons of Mortgage Protection Insurance
Mortgage protection life insurance can be useful to have because it can be convenient for home buyers and there is often no medical exam required, according to NerdWallet. It can be an option for those who are unable to obtain whole life insurance.
But there are drawbacks too. All of the payout goes to the lender, so there’s no benefit to family members of the insured who may have other debts beyond the mortgage. The premiums are often much higher than what you’d pay for whole life insurance and whole life allows you to choose a policy amount and the length of time you want to pay the policy off. With mortgage protection life insurance, the payout amount decreases the longer you pay the mortgage out even though your premiums will remain the same.
Cliffco Can Help You Find the Loan That’s Right for You
If you’re looking to buy a home, Cliffco Mortgage Bankers can give you the loan options you may qualify for. If you’re looking to finance, we can help as well. If you’re in the market for a home, we can help you find the right loan, contact Cliffco today.