Secure your Mortgage with Mortgage Insurance
Mortgages often eat up a sizable chunk of one’s earnings, not to mention that there is also a property and a person’s life savings on the line. Mortgages can be suicidal and must be taken up only in grave need as it creates a huge burden. Initially the money that is borrowed takes care of pending bills and payments but later on it becomes quite problematic. Then there are banks or financial institutions who are very particular about their instalments. One default and you’ll find an official reminder at your doorstep.
Mortgages have a long history of creating troubles and it is always recommended to contain them before they get out of control. One of the many ways is to get yourself insured under mortgage insurance scheme. Private mortgage insurance, as it is popularly known, is an indemnity bond that covers the lender or property owner in case of repayment defaults, death and incapacity in meeting with contractual obligations of a loan. The insurance protects the lender in these cases and covers up his losses.
All about mortgage insurance
Mortgage insurance is primarily done to indemnify the borrower against uncertainty. For instance, if a borrower has a mortgage on his house and goes bankrupt, then mortgage insurance will help cover his outstanding balance. The bank will not need to sell his house to recover the balance amount; it will be paid by the insurer.
Mortgage insurance not only saves the property but also keeps the borrower’s heirs free from any repayment obligations. Upon death the balance is automatically paid by the insurance company. In lieu, yearly premium payments must be made.
Mortgage insurance is a type of general insurance and one need to renew the policy every year. There are two types of mortgage life insurances:
Declining term insurance:
In this method the insured pays a lesser premium as it is linked to the outstanding balance. Every year upon renewal the premium is calculated according to the outstanding balance. The premium decreases until both, the principal and premium reach zero.
Level term insurance:
In this method the premium remains same even though the outstanding balance decreases every year. It is preferred by borrowers who have borrowed an interest only loan on their property.
Taking a mortgage is not a very good option and must be considered only as a last resort. One must always take up a mortgage insurance policy while applying for a loan.
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