Q: What is PMI Private Mortgage Insurance?
A: Often home owners mistakenly believe their Homeowners insurance affords this protection. Or that the premiums they are paying for PMI affords this protection.
Don't Mistake PMI for Mortgage Insurance. The terms are very similar, but actually insure to completely different things.
PMI on your loan is Insurance to indemnify your Lender should you fail to make your mortgage payments as agreed. PMI helps you into home ownership with little, or no money down. It is usually required by your lender if the loan on your home will exceed 80% of the appraised value. It does not prevent the loss of your home from foreclosure and does not pay off your mortgage in the event of your death or disability.
Government Home Guaranty services like VA Loan programs, or FHA loan programs are also "insurance" programs that help you into home ownership with little, or no money down. They do not protect against the loss of the home when the loan cannot be repaid because of the death, or disability of the homeowner.
Don't mistake accident only coverage for "Mortgage Insurance". If you applied by mail, you most likely have bought an accident (only) mortgage protection. This type of coverage does not pay off your mortgage in the event of death by natural causes, like Cancer, Heart Disease, Diabetes, Kidney failure, Stroke, Aids, etc. Coverage for death by natural causes would require a life insurance application in which you were asked to answer health questions.
Q: Which coverage is more important to maintain, Home Owners Insurance, or Mortgage Insurance? IE: (MPI) Mortgage Protection insurance, usually level Term life Insurance issued for the balance and term of your mortgage.
A: It is very important that you maintain both of these types of coverage.
Homeowners insurance protects you and your lender, against the financial cost of repairing, or replacing your home, when physical damage is caused by Fire, Windstorm, Hail, Vandalism, etc. Your lender requires proof that you have this type of insurance coverage on your home before they will make you a home loan and requires that you maintain this coverage until you have repaid the loan,
Mortgage Insurance, also known as Mortgage Cancellation Life Insurance, Mortgage protection life insurance, or Home Loan Insurance, can protect your family against the possible Loss of their home through foreclosure, or a forced Sale when one, or both of the homeowners dies before repaying the home loan.
Without Mortgage Insurance, (Mortgage Protection term life Insurance) ,often the surviving spouse does not have the income to repay the loan.
Because mortgage loans are usually for a specific (term) or duration, (ie.15 years, 20 years, or 30 years.) a Level Term life insurance policy is often used for Mortgage protection because it requires less premium than an interest sensitive whole life insurance, or universal life insurance policy.
Some homeowners prefer to pay the higher premium of interest sensitive Whole life or Universal Life insurance because of the potential cash value accumulation in an interest sensitive whole life, or universal life policy that could be used to supplement retirement income if you live to complete your mortgage payments.
Regardless of your preference, obtaining some type of mortgage insurance protection is very important.
Statistical information obtained from *Mortgage Bankers Quarterly, revealed that up to 70% of all foreclosures in the United states, and up to 85% of all forced sales were the direct result of the death, or disability of an uninsured, or under insured homeowner.
Q: What are the chances of losing my home by Fire?
A: one out of100.
Q: What are the chances that I won't live long enough to repay my mortgage?
A: The statistical risk of dying is much greater. The risk depends on your age at the time you obtained your mortgage. Statistical information obtained from *NAIC Commissioners Standard Ordinary Mortality Tables reveal that the chances of death before completing a 30 year mortgage are:
Age 50: Almost Certain
Age 40: one out of 2
Age 30: one out of 4