Ditech : Mortgage Insurance Buyer

Mortgage companies rely on mortgage insurance to protect themselves from defaulting mortgage borrowers. If a mortgage buyer does not make the payments, then the insurance company pays to the mortgage company. Mortgage companies buy their insurance from insurance providers and pay premiums on the same. These premiums are then passed on to the buyers of the mortgage. Buyers may have to pay for the premiums on an annual, monthly or single-time basis. The insurance payments are added to the monthly payments of the mortgages. Mortgage insurance policies are also called Private Mortgage Insurance or Lender’s Mortgage Insurance.

Generally, mortgage companies need to be insured for all mortgages that are above 80% of the total property value. If the mortgage buyer makes a down payment of at least 20% of the mortgage value, then the company may not require an insurance policy. But typically, mortgage buyers cannot afford to pay 20% of the down payment, and hence most mortgage companies require insurance, and these insurance premiums increase the monthly payments of the borrowers.

Thus, the mortgage lenders get to choose their insurance providers, but the borrowers of the mortgage are obliged to pay the premiums. This is where the controversy against mortgage insurance begins. But paying a mortgage premium allows the mortgage buyer to be able to buy the house sooner. This also increases the cost of the house and enables the person to upgrade to a more expensive house sooner than expected.

Sometimes the added cost to the borrower due to the payment of insurance dues to the company is added in the monthly payment itself. In such cases, the payment is called as a capitalized payment. Capitalization provides some benefits to the borrower, as the entire payment then becomes tax-deductible.

Mortgage insurance must follow the guidelines of the Federal Housing Administration (FHA). Both government and private financial institutions can provide mortgage insurance. The premiums payable on mortgage insurance depend on the purpose for which the borrower is buying the mortgage. In general, mortgage premiums on housing are higher than for other purposes.

Ditech : Mortgage Insurance Term

‘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.