We all have thought of taking out a mortgage at one point or another. In addition to the excitement that a mortgage promises, there are risks involved. The most common risk is the possibility of defaulting. Do we ever pause to think of what this would mean for the lender? Does a mortgage lender have any sort of recourse in such a situation? Let’s find out.
Mortgage insurance is a policy that protects a title holder or mortgage lender should the borrower default on their payments, die, or for any other justifiable reason, be unable to meet their obligations with regards to payment of the loan.
In most cases, the insurance is offered as the usual pay-as-you-go-premium type or, in some cases, could be computed in terms of a lump-sum payment where it is calculated based on the time of origination. There are various forms of mortgage insurance as we will discuss below.
Forms Of Mortgage Insurance
Private Mortgage Insurance – For a private mortgage insurance, the insurance is issued to a borrower as part of a condition in a typical mortgage loan. This insurance, like any other mortgage insurance, covers the lender. The mortgage insurance is originated by the lender and then facilitated by a private insurance company. Usually, a lender will opt for this mortgage insurance if the borrower commits a down payment not exceeding 20% for a sum borrowed. Other times, the lender might opt for it if the borrower chooses to refinance using a conventional loan or it could be used when the borrower’s equity does not exceed 20% of their home value.
Qualified Mortgage Insurance-Premium – This is a mortgage insurance that is required of those who get a Federal-housing Administration [FHA] insured mortgage. These kinds of mortgage premiums have a different set of rules. One outstanding requirement is that all those who have taken FHA mortgages must buy this insurance whether they have made a substantial or insignificant amount of down payment.
Mortgage Title Insurance – At times, losses occur when, for some reason, a sale is invalidated as a result of inconsistencies in the title provided. In such cases, a mortgage title insurance is required. This insurance will cushion beneficiaries from unprecedented losses in the event the ownership of the property is in dispute during the sale. Experts advise that a legal representative should be involved before closing such a mortgage. Legal representatives will perform a thorough title search so as to ensure the parties involved that the ownership of the property in question is not in doubt. Also, a title search might help unearth any possible liens on the property that would cause hurdles during the selling process.
Mortgage Protection Life-Insurance
This mortgage insurance is offered to borrowers when they begin the mortgage borrowing process. The offer can be declined but such a decision has to be counterchecked to ensure you understand the risks of taking such a mortgage without the insurance.
For this sort of mortgage insurance, payouts are made usually in declining term, where such payouts drop in correspondence to a drop in the balance or level.
Evidently, mortgage insurance is something never to be overlooked when thinking of taking up a mortgage. Whether you are a lender or borrower, this insurance will cushion you against some unforeseen circumstances.
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