What is Mortgage Insurance and do I need one?
Whenever someone needs a home loan or a mortgage it is a condition that every borrower must have mortgage insurance and if the borrower is not interested he must sign or tick a condition on that form
Mortgage insurance is generally insurance for the money lender as he is giving money to person and he wants to make sure in case of the person (borrower) his money is secure. So basically a borrower pays for the security of the lenders money in case of his death.
Mortgage Insurance Vs. Life Insurance.
Many people have their own thought of mortgage insurance vs. life insurance
Mortgage insurance is the home owner keep paying the amount of premium till the end of his/her mortgage term and at any point during that term if the home owner dies his outstanding amount to the mortgage will be paid off to the lender means in that case the home owners family will not have to pay anything to the lender and their house is paid off so that his/her kids can live in that house and the roof over their head is protected but the disadvantage is that the home owner keep paying the same premium till the end of his/her term no matter how much amount on the mortgage is left the premium of the insurance never changes. In this case the family of the house owner of borrower does not get a single penny.
As compared to life insurance a borrower can buy a separate life insurance policy of any type equivalent to the amount of the mortgage and consider that insurance towards his mortgage insurance. In this case the family of home owner gets the money equivalent to the borrowed money and they can pay back the mortgage and keep the balance amount with them.
Here is an example of both
Mr Jones gets the home load of 500,000 for payable in 30 years. He also bought mortgage insurance for that same amount and his premium is $150 per month. After 20 years Mr. jones dies in a car accident and he still has 10 years of mortgage pending and the outstanding amount on his mortgage is left $120,000 his balance mortgage will be paid by mortgage insurance the amount of 120,0000. His family can keep living in the same house and that house becomes fully paid.
In life insurance scenario
Let’s assume Mr. Jones took a life insurance instead of mortgage insurance and same above scenario the life insurance pays $500,000 at the time of his death to his family. Mr. Jones family pays 120,000 to the lender as a pending amount on their mortgage and keep the $380,000 for themselves.
Now this could have been any type of insurance an investment policy or many products that do benefit the individual or his family.