What Type of Home Insurance Pays Off a Mortgage?
There are 2 main types of insurance which pay off a mortgage, lender required and borrower desired. It’s important to understand the difference between these two because they serve two very different purposes.
Lender Required Mortgage Insurance
A lack of equity position in a home loan is what drives the need for required mortgage insurance. To remove required insurance when purchasing or refinancing a home most lenders require that the borrower must place 20% down payment (equity) on the home. This insurance IS NOT A BENEFIT FOR YOU because its purpose is to mitigate the risk to the lender in the event you default on the loan.
Common REQUIRED types of mortgage insurance are:
- Private Mortgage Insurance: PMI – Regular financing
- Single Premium Mortgage Insurance: SPMI – Regular financing
- Mortgage Insurance Premium: MIP – FHA financing
- Up Front Mortgage Insurance Premium: UFMIP – FHA financing
However, if you own a home and have the required type of mortgage insurance there is hope. As your home climbs in value and you start acquiring equity through your regular mortgage payments, you may be able to remove this insurance once you reach the 20% equity position.
Borrower Desired Mortgage Insurance
The most common type of desired mortgage insurance is Mortgage Protection Insurance, better known as just MPI. These plans ARE FOR THE BORROWERS BENEFIT because they mitigate or eliminate the financial burden of the loan in the event of injury or death of the borrower. Several insurance carriers offer these plans that are usually types of life insurance. Both temporary and or permanent plans comprise this type of protection and may have many extra benefits available. These plans are designed to accelerate the payoff of your mortgage in the event of an untimely death due to accident, sickness or illness. Some common benefits of these plans are:
- Guaranteed premiums for the duration of your loan
- Return of premium options
- Living benefits for critical and chronic illness
- Waiver of premium
If you own the desired type of mortgage insurance, you have done a very selfless act, because you have ensured that your family will have a paid for home in the event the unthinkable were to happen.
If you have questions about these types of mortgage insurance please don’t hesitate to call Chris Wilson at (619) 980-7263. He can help to make sure you’re adequately covered..
