For those who have opted for a mortgage loan, a question arises as to what will happen if they lose their jobs, become incapacitated, or suddenly die. Their loved ones will wind up paying a hefty mortgage loan, or they could lose their house. In this situation, mortgage insurance (MI) will come to your rescue. By taking mortgage insurance, you are guaranteed for a repayment of a mortgage loan in the unfortunate event of your life. You can protect your loaned capital through unique insurance instruments.
Private mortgage instrument (PMI) and Mortgage Insurance Premium (MIP) is the two mortgage instruments available.
The primary reason to buy mortgage insurance is safety. It reduces the risk of your lender because he is assured of getting his money paid by the insurer. This consequently qualifies you for a higher loan that otherwise is difficult to get.
In case of a default on loan, the insurer covers the difference between the fair market value of the house and the actual amount the lender can get by selling the house. This is of great benefit to the lender because it allows the lender to recover the loan even if the property is not worth enough to pay off the balance amount on loan.
In the current economic climate, home buyers generally tend to avoid PMI due to its initial cost. 20% down payment is too heavy an amount for first-time home buyers to raise, as it could take their years of savings. On the other hand, the lenders would also have no incentive in lending without additional safeguards. To solve this deadlock, private insurance players are coming forward to offer home buyers access to mortgages.
Before the economic renaissance in India in 1990, the Indian mortgage insurance was an unorganized sector. They used to extend financial loans against any valid insurance of the borrower. India’s liberal economic policy post-1992 saw growth of manufacturing and infrastructural industries which gave a tremendous boost to the mortgage insurance sector.
Now the mortgage insurance sector is well organized and growing at a faster rate thanks to the huge real estate requirements in India. The age-old housing mortgage facility has now metamorphized into customer-friendly mortgage insurance companies. The growth is estimated to be of USD 18 billion sooner or later.
Apart from PMI, there is a Mortgage Protection Insurance (MPI) also. PMI is especially useful for the lenders as it recovers the unpaid amount of their loan from the insurance company. It does not cover the mortgage payment of the borrower due to unfortunate events in his life. MPI, on the other hand, will include the mortgage payment in the unfortunate circumstances of the borrower. So, lenders do insist upon the borrowers to take PMI because they are assured of getting the unpaid amount of their loan from the insurance company.
The deductible that one can go for is, to pay more in monthly installments so that when the crisis hits, you are not burdened with a sizable deductible amount.
If you are planning to have a mortgage loan in the near future, think of mortgage insurance, as it comes with an affordable down payment and you need not worry about the outstanding amount on your loan if you become incapacitate to pay it off, because that will be taken care of by your mortgage insurer.
Mortgage Insurance Premium is meant to protect you if you fail to repay the amount on account, and also know Mortgage Insurance Benefits and Features