If you’re unable to make the required down payment, you’ll have to purchase private mortgage insurance (PMI) to protect your lender in case you default on your home loan. Besides PMI, there is another basic type mortgage insurance known as mortgage protection insurance. This insurance covers your loan payment when you’re unable to make timely payment towards it due to illness, loss of employment, or disability. In the event of your death, it repays your outstanding mortgage balance.
What is private mortgage insurance?
When you’re unable to make 20% of the home purchase price as down payment, you will have to purchase private mortgage insurance. Though you pay the premiums, this mortgage insurance provides coverage to your lender and protects him from financial loss if you’re unable to repay the home loan.
What are the different types of mortgage protection insurance?
Mortgage protection life insurance can be sub classified into various types. Each of the type provides coverage under different conditions. Some of the types of insurance and their benefits are:
* Mortgage life insurance: Mortgage life insurance protects your home and saves your family from the burden of paying off your outstanding home loan balance in the event of your death. This type of insurance can be grouped into level term insurance and decreasing term insurance. You can purchase level term insurance for a fixed period of time. The sum assured and the premiums required remains leveled through out the term. Unlike the level term insurance, decreasing term insurance offers death benefit that matches the outstanding balance on your mortgage. So when you repay the home loan, the policy becomes void.
* Mortgage disability insurance: This form of mortgage protection insurance calculator covers your mortgage payments if you are unable to perform the main duties of your job due to an injury or illness. It pays a monthly amount for a period of few years. The amount depends on your policy and your salary at the time of your injury. Generally, the disability insurance policies have a waiting period that varies from 30 days to 90 days. You claim is reimbursed after this waiting period. You can lower your insurance premiums by opting for a longer waiting period.
* Job-loss mortgage insurance: If you want to protect your house from foreclosure when you’re unable to make your monthly home loan payment as because you have lost your job, you can purchase job-loss mortgage insurance. While you search for a new job, your policy will cover your full monthly mortgage payments or a portion of it. Most of the job-loss insurance policies do not start paying as soon as you are involuntarily laid-off from work. The policies usually start 60 days after you file your claim and covers the home loan payments up to 12 months.
Another type of mortgage protection insurance is mortgage critical illness insurance. This policy helps you pay off your loan when you are diagnosed with a critical or terminal illness. Before you apply for a home loan, you should determine the type of mortgage insurance you will require and accordingly opt for it.