Does Mortgage Insurance Really Help?

The following is a guest post about mortgage insurance. If interested in submitting a guest post please read my guest post policy and then contact me.

One of the biggest complaints consumers have about buying a new home is the requirement that they must purchase mortgage insurance. Having your mortgage insured may not seem like such a bad idea – that is, until you realize that mortgage insurance policies are written to benefit the lender, not the buyer.

Basically, what a mortgage insurance policy does is provide the mortgage lender with the assurance that their investment will be protected, should you default on the loan. So what does the buyer get out of the deal? Well, they get to pay the premiums on the mortgage insurance policy, with no special considerations or benefits given to them in the event of a default on the loan.

Pretty unfair, right?

Not really.

See, mortgage insurance does provide buyers with a number of round about benefits that are direct results of having a mortgage insurance policy in place. The policy itself doesn’t mention them because they aren’t benefits that are actually paid out by the insurance company. They are considered collateral benefits. We’re going to show you some of these collateral benefits of having mortgage insurance and what they mean for you – the home buyer.

Lower Down Payments

Mortgage companies require insurance when the down payment is less than 20% of the loan. This is one way of insuring their investment. However, when you have mortgage insurance, lenders are more likely to accept lesser down payments and you could end up only having to come up with 5% off the purchase price. This perk is very attractive for first time home buyers who may be working with limited funds. Further, once you’ve paid the loan down to where only 80% or less of the original amount remains, most mortgage companies will let you cancel the policy.

Lower Interest Rates

Mortgage lenders dictate a home buyer’s interest rate on lots of variables – such as the current market rates, their credit score, their credit history and the length and amount of the loan. When you have mortgage insurance, it makes you less of a risk to the lending company because their investment in you is secured via the insurance policy. This can work to your advantage by lowering your interest rate for the life of your mortgage.

Reduced Closing Costs

Most lenders tack on the insurance premiums to the end of the mortgage loan, which increases your closing costs. This means that the yearly premium is paid up front, aside from the mortgage and also results in more money out of your pocket up front when you sign for the home. What few consumers know is that some, if not all, lenders will include the price of the insurance policy in the  mortgage loan itself, which means the premium is paid each month when you pay your mortgage payment.

To find out more about mortgage insurance and how they can benefit you, contact a reputable insurance agency. They can help you find the answers to all your mortgage insurance questions as well as help you decide which kind of mortgage insurance policy is right for you.