Why Mortgage Insurance
It is aptly said that no one can be sure about life and death. It is this element of uncertainty and the financial inconveniency related to it that the financial instrument of Mortgage Insurance has come into existence.
A person has borrowed some money from the lender and is even regular at paying the effective monthly instruments but what are the provisions if this person meets with an untimely death. It is in these conditions that the mortgage insurance exhibits its relevance.
Sometimes a person fails to keep to his promise to pay the effective monthly installment in spite of his best intentions. If this person has not made provisions for Mortgage Insurance then the family has to undergo not only the emotional trauma but are victims of pestering by the collectors who seek the remaining monthly installments from the remaining family members.
In case the borrower meets with an accident and has to undergo amputation it is possible that his earnings may tend to decrease drastically disabling him from paying the remaining effective monthly installments. If this person has a Mortgage Insurance then the insurer can help him decrease the amount that he has to pay to the lender by paying a part of it.
Thus we can say that Mortgage Insurance is a resort by which the insurer protects the lenders money as well as your financial interests. Mortgage Insurance acts as a buffer between the two. The lender can be care free if the borrower defaults because the insurance company has taken the responsibility of paying effective monthly installment in case of the borrower committing a default.
From another angle of view one can even say that the insurer and the lender are in partnership to share the financial loss in case the borrower defaults. The premiums of this policy have to be paid by the borrower not by the lender.
Mortgage insurance can be a blessing for those who have purchased more than one house. In this case the down payment is comparatively less and there is a possibility of even saving 10% of the total down payment. Certain type of tax relief becomes applicable on you because the amount of interest rate can be dedicated from what you paid to the lender at the time of tax. Thus one can save a lot of money.
Mortgage Insurance is not without disadvantages because you can end up giving costly premium even when there is no need of it. Some people have paid premiums of mortgage insurance even when they have repaid more than 80% of the mortgage.
