Mortgage Loan Insurance: A Lowdown on the Basics
An Introduction to Mortgage Loan Insurance
Mortgage insurance has a simple explanation. If you are applying for a home mortgage and the down payment you made is less than 20% of the mortgage amount then the lender requires that you have mortgage insurance. In the event that you are unable to pay back the mortgage and go default, it protects the lender. The advantage that it serves you with is that even with a down payment of less than 20%, you still have a chance to fulfill your dream of becoming a homeowner.
Understanding How Mortgage Loan Insurance Works
Let us now see how it actually works. Mortgage loan insurance comes with a fee paid by the lender. It is known as the mortgage insurance fee that your lender may add as a part of the mortgage that you owe him in total. To be applying for mortgage insurance, the down payment has to be minimum. Now it may be one of the following:
- If the home costs $500,000 or less, you’ll need a minimum down payment of 5%.
- If the home costs more than $500,000, you’ll need a minimum of 5% down on the first $500,000 and 10% on the remainder.
- If the home costs $1,000,000 or more, no mortgage insurance is applicable.
Your lender will pay a premium on the mortgage insurance. It will be calculated percentage-wise and depends on the size of the down payment you make. It is often added as part of the mortgage and paid in installments. Connecting with a lender or applying for mortgage insurance, both require that you have explored all options and have in-depth knowledge of the impact it will have on you financials with the help of an expert mortgage broker. It’s possible to get a loan for mortgage insurance directly from the company, but this is not a wise idea unless you have the expertise as SN Mortgage does.
Know the Pros & Cons of Mortgage Loan Insurance
There are many pros and cons to mortgage default insurance. Let us have a look at them in detail.
- It opens the door for you to become a homeowner. If not anything, the fundamental benefit it brings is the ability to buy a home even for those with a low down payment available.
- On a wider level, it brings stability to the economy of the country as it takes care of those who lend a huge amount to those who otherwise do not seem to be paid back easily.
- It allows the borrower to be kept safe from exploitation because, with less down payment, the interest rate offered is very high and brings one almost near to going default. The high-end mortgages (the ones covered by the insurance) often get a better interest rate than the uninsured ones.
- The basic con perceived about mortgage insurance is the premium fee that must be paid to the lender by the borrower. As a result, along with the mortgage, you will pay back this fee and some interest as well, as it will be part of the mortgage.
- Even after you pay the mortgage that you owe, you still have less equity or degree of ownership as you still have this added amount left to be paid.
- In some states, the tax is applied on the premium which has to be paid upfront and cannot be made part of the mortgage.
Understand The Types of Mortgage Default Insurance
SN Mortgage has expert mortgage agents who provide the best mortgage protection Insurance opportunities. You might be wondering if there are options to choose from when it comes to mortgage default insurance and there are as following:
Borrower Paid Mortgage Insurance
The most common type of insurance is where you pay an additional fee along with your monthly mortgage payments till you get 22% of your home equity.
Single-Premium Mortgage Insurance
With this type of mortgage insurance, you pay for the mortgage insurance upfront and in a lump sum amount.
Lender Paid Mortgage Insurance
With this type of insurance, the lender will pay the insurance upfront, but you must pay him back over a period along with interest applied on it. This will continue till you have an equity of up to 78%.
Split Premium Mortgage Insurance
In this type of insurance, the borrower, and the lender both pay partially for the mortgage loan insurance, and it works for both. The borrower has a less lump sum amount to arrange, and the lender will pay the rest. The lender will recover his bleeding through monthly payments you make which include the insurance.
Federal Home Loan Mortgage Protection
This type of insurance is granted only when the loans under discussion are underwritten by the federal housing administration.
Get an Idea of How Much Mortgage Insurance Costs
The mortgage insurance cost may lie somewhere between 0.60 to 4.50% of the total mortgage loan amount and is calculated as a percentage. There are many factors that impact the total cost you will have to bear such as:
- The premium plan you choose.
- The type of interest rate you have.
- The term of your loan.
- The down payment you pay.
Now, these may look like many factors to consider yourself but worry not, we provide excellent mortgage insurance services through our mortgage specialists and ensure that you do not make any wrong decision.
A Guide to Qualify for Mortgage Default Insurance
For you to qualify for the mortgage default insurance then you should have a down payment of less than 20% of the total mortgage. A lender should be by your side ready to pay for the premium which may later be added to our mortgage amount as the insurance fee. It provides protection to both the borrower as well as the lender to be able to work comfortably under harsh conditions. Our Mortgage loan insurance advisor makes it easy for you to become a homeowner without further await by properly guiding you and providing you with all the right options to choose from.
Process of Paying Out Mortgage Loan Insurance
Based on the type of private mortgage insurance you choose the process of paying out may be simple. It may be paid upfront by the lender and then it becomes part of the mortgage that you pay back. You will get monthly checks to pay and the insurance premium will be covered within it.
Get Mortgage Insurance Help From Top Mortgage Brokerage Firm
SN Mortgage has an experience of over 20 years in the field of mortgages and has the most expert mortgage agents up our sleeve. We help you nail the best mortgage loan insurance rates all due to our extended network of lenders where we are able to cater to each of our customers easily.
Give us a call today (416) 894-3976 or send us an email at [email protected]