Mortgage protection insurance comes in different formats, including private mortgage insurance for lenders, and mortgage protection plans for homeowners in case of death, disability, or job loss. Choosing the right plan depends on the borrower’s needs and situation.
Mortgage protection insurance comes in a variety of formats. Each one is designed to provide coverage in the event of a specific incident. Private mortgage insurance is designed to protect the lender if a borrower defaults on the loan. Mortgage protection plans, on the other hand, are purchased to provide homeowner protection in the event of death, disability, or sudden job loss.
Private mortgage insurance is required for borrowers who cannot provide a down payment that is at least 20 percent of the home’s sales price. Since the lender assumes more risk due to the buyer’s lower initial capital, private mortgage insurance pays the outstanding loan amount if a default occurs. This type of mortgage protection insurance is usually included in the borrower’s monthly mortgage payment and is paid directly to the lender.
A separate mortgage protection plan is in place to directly protect borrowers in the event that they are unable to make their monthly payments. Choosing which type or combination to buy depends on the anticipated needs of the borrower. Homeowners who have families consisting of multiple dependents may want to consider mortgage life insurance.
In the event of the death of an owner, the mortgage life insurance protection will pay the remaining balance of the loan. While this type of mortgage protection insurance might not make much sense for singles, a young “head of household” would benefit greatly from the plan. He would ensure that the family still has a place to live despite the sudden loss of life and income.
Mortgage disability insurance pays the monthly mortgage payment if the borrower suddenly becomes disabled and cannot work. This type of insurance is probably not necessary for those who already have a disability policy through their employer. Any separate disability policy will cover a percentage of your salary, helping you continue to make your mortgage payments. For those in high-risk, physically demanding jobs who don’t have a separate disability policy, this type of mortgage protection insurance might be worth considering.
Another type of mortgage protection insurance is unemployment insurance. This covers your monthly mortgage payment if you suddenly lose your job. Those without substantial savings or the discretionary income to regularly contribute to a savings account may find this type of protection beneficial.
Choosing any mortgage protection insurance plan involves comparing rates from multiple sources. Look at exactly what each policy covers as some companies offer combination packages. For example, one plan may include life and unemployment protection, while another provides only one of two available coverages.
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