Mortgage insurance is a kind of financial security for lenders whenever a borrower defaults on a mortgage loan. The insurer eradicates or decreases the loss to the lender if the borrower defaults on the loan.
Mortgage insurance assists the lender who is providing the financing. It allows anybody to be a homeowner faster and gives them more control in acquiring a property. Low downpayment is possible for first-time homebuyers to assist them to have the funds for their first property. On the other hand, mortgage insurance gives great tax gain for those previous homeowners because they can utilize the money for moving costs, investments and other expenses as downpayment.
Typically, at least 20% downpayment in a home's purchase cost is required for a borrower if there is no mortgage insurance security. This re-assures the lender that the borrower is going to meet the requirement of monthly compensation. Lender normally agrees with five or ten percent downpayment from the borrowers if there is a mortgage insurance security.
Naturally, borrowers are the ones who pay for the insurance. At closing, a preliminary premium is collected and the property sum is integrated in the monthly payment to the lender, who passes on the amount to the insurer.
There are different kinds of premium plans available such as annuals, monthly premiums and singles. Refundable as well as non-refundable premiums can be preferred with these plans. If ever the mortgage insurance is terminated even before the credit is paid, the borrower will benefit with a money-back guarantee on a refundable premium. On the other hand, the borrower cannot have a refund if the mortgage insurance plan is terminated through a non-refundable premium.
Whatever the case may be, always plan your finances and refinancing resources carefully to avoid going into any mortgage loan default. Stay prudent !
