By Matt Ellsworth
‘Mortgage insurance’ is a term that you will surely come across if you are going for a mortgage loan. Let’s get
straight into finding out what this term (‘Mortgage insurance’) means.
Mortgage insurance is a great tool for both the borrower and the mortgage lender. By definition, mortgage insurance
provides protection to the mortgage lender in case the borrower defaults on the mortgage. Mortgage insurance covers the
loss that a mortgage lender can incur in such a circumstance. So besides taking title to property, the mortgage lender
is also protected against loss by mortgage insurance. The premium of this mortgage insurance is obviously paid by the
borrower and there are different ways in which the borrower can pay this mortgage insurance premium e.g. one way
is to include it as part of the monthly mortgage payments that are made to the mortgage lender (who in turn passes
on the amount to the mortgage insurer).
However, how does mortgage insurance provide benefit to the borrower?
Since mortgage is a big financial transaction, the mortgage lenders need to safeguard their interests in all
possible way. So, mortgage lenders require the borrower to demonstrate their commitment to the investment. One way of
showing this commitment (and the ability to pay monthly mortgage payments) is to make a down payment. The mortgage
lenders generally ask for a down payment of around 20%. However, if the borrower goes for mortgage insurance, the
down payment amount may be significantly reduced by the mortgage lender. So, a borrower might be required to pay
only 5% or 10% as mortgage down payment instead of the mandated 20% or whatever. This means that mortgage insurance
is especially good for people who don’t have enough cash to make large down payments (as such 20% is quite a big amount
in itself). Such people can save on cash by going for mortgage insurance. Moreover, since mortgage insurance provides
a lot of confidence to the mortgage lenders (in terms of their investment being safe), the processing of your mortgage
application could be faster and smoother than what it would have been without mortgage insurance commitment. So not only
does mortgage insurance increase the buying power of a borrower it also provides him/her with benefits in terms of getting
a good mortgage deal and getting it faster.
So, mortgage insurance is really advantageous both for the borrower and mortgage lender and the onus lies on the
borrower to hunt for a good deal on mortgage insurance and also on the mortgage itself.