Mortgage Insurance: Is It Useless or Useful?

Mortgage Insurance: Is It Useless or Useful?
October 27 17:36 2016

What is Mortgage Insurance?

Mortgage insurance is a guarantee requested by a lender, a bank for instance, on a loan application. Although this is not a legal requirement, it is required in almost all cases. This policy covers the risk of default regardless of their causes, which explains why it is so important for the lender

Loan insurance includes guarantees covering the risks of disability. In addition, it guarantees the creditor (bank or financial institution) against other various risks of default by the debitor such as:

  • job loss
  • temporary incapacity
  • unemployment
  • exemption of insurance premiums
  • total and irreversible loss of autonomy
  • death.

mortgage insurance Loan insurance is not only essential to secure the repayment of a loan in case of sudden loss of income, it also avoids the debtor to pass his debt to his heirs or his co-borrower in case of death.

The policy is therefore to protect the lender against the inability of borrower to repay the home loan. In consideration of the guarantees in the contract, the mortgagor (homeowner) must pay a fee of which payment is subject to strict rules. You should also know that insurance companies are free to determine the conditions to which they agree to guarantee a risk. The applicant may be asked to fill out a medical questionnaire.

Tips for choosing the right mortgage insurance

When purchasing a loan, few individuals really search and compare insurance policies before making a decision. This is a mistake you can and should avoid; you have options.

But among the group of contracts offered by banks and individual contracts, which requires an “insurance delegation”, how can you find and choose the right insurer?

To answer this question, first you need to know the difference between a group contract and individual insurance.

Group contract – The principle of a group contract is to charge a rate equivalent to a large part of policyholders. Either the price is the same for all borrowers, or it is common to a group of policyholders of certain age. And inevitably, when subscribed in group, there are winners and losers. Those who are naturally advantaged are generally smokers and the elderly. Instead, the most disadvantaged by this type of contract are healthy young people.

Individual contract – An individual contract, although can be more expensive, is advantageous because it is adapted to the need and profile of each policyholder. In this case, each individual who holds the policy pays the right price for his insurance, depending on lifestyle, activities, age, and others.  In other words, it is custom-made, which is completely different from the group contract.

Be careful of these MISTAKES when choosing your mortgage insurance

mortgage insurance The first thing most people tend to be interested in is the price. But it is also very important to look at what are the guarantees of the contract. You must choose insurance that meets your type of life. It is essential to read the Terms and to be certain that the contract covers the essentials of your daily life. Let’s say for instance you are hair dresser, you must be covered for the practice of your activities.

If you are sick or suffering from a chronic disease you should also be careful when buying the policy. Some important benefits may be denied in a group contract. You certainly will pay more for your individual insurance, but at least you are safely covered. There are, moreover, differences in the response times. You need to be vigilant about these unpleasant possibilities.

Mortgage insurance increases the cost of your loan

Given the coverage reduces the risk to the lender to lose his investment, the insurance also increases your chance of qualification for a loan that you might not otherwise be able to obtain. But, it increases the cost of your loan. The cost of the insurance will be included in your total monthly payment which you make to your lender, your costs at closing, or both.

In conclusion, you need to remember, mortgage insurance does not protect financially protect the homeowner, but the lender. That is, in case the homeowner is unable to make payments, the delinquency will affect his credit score. He may even lose his home through foreclosure.

 

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