people getting insurance

Should You Purchase Mortgage Insurance?

As one of the few perks of mortgage insurance, your family can rest easy knowing you’ll have mortgage coverage if you were to pass away unexpectedly. You might unwantedly cause disputes after your death, with your family having to hire attorneys for estate litigation.

If a home buyer can’t give out a down payment of 20% on a mortgage, the lender will demand the buyer purchase supplementary insurance for added protection. Lenders are often the primary beneficiaries of this insurance, but it can also assist home buyers by letting them enter the home market sooner than they otherwise would.

Advantages of Mortgage Life Insurance

Term life insurance can also provide flexibility to your family, depending on how they use the insurance payout. Match the policy length and your coverage amount to your mortgage using term life insurance. Additionally, you can also choose a coverage length or amount that coincides with your other financial-related responsibilities that you want to be backed up, like your kids’ college tuition or your annual income.

You can benefit from mortgage life insurance in other ways, such as the ones below.

No Life Insurance Medical Exam

You don’t need to answer any health-related questions and undergo a medical exam with mortgage life insurance. If you have an underlying illness, you can use mortgage life insurance as an alternative to traditional life insurance that includes health conditions as a cost factor.

Riders

You can also add other life insurance riders to your existing policy, such as:

  • Living benefits

Having a living benefits rider will give you easy money access from your policy’s death benefit if your doctor diagnoses you with a terminal illness — having a year or less as life expectancy.

  • Return of Premium

You will have a return of premiums you paid with the rider you have after a few months. You can review the rider to see its specific timelines and rules.

Make the Most of Rising Home Values

Rising property prices might make it more difficult for homebuyers to save enough money for a 20% down payment. On the other hand, PMI allows purchasers to take benefit of equity increase while still buying property. If home values continue to rise, buyers have the choice of dropping their PMI earlier if they generate more than 20% equity in their property.

Take Advantage of Low-Interest Rates

If you waited until your budget was enough for a 20% down payment, you might have to pay more in interest throughout the loan term if your interest rate rises. To make the most of low-interest rates, focus on your PMI payments!

Get Your High-interest Debt Consolidated

PMI is an excellent way for those with much high-interest debt to get it all under one roof. The borrower may, for instance, pay a lower mortgage down payment and use the money to pay their higher interest obligations, such as college loans.

Moreover, you can lower the mortgage payments you pay every month by creating extra prepayments on your mortgage and denouncing a lesser down payment. You might complete payment of the private mortgage insurance considerably quicker if you make these additional principal payments.

woman signing an insurance contract

Disadvantages of Mortgage Insurance

Expensive for Individuals in Good Health

Because a mortgage policy does not include a person’s health in the expenses, it can be more costly than term life insurance for the coverage amount you receive. If you have good health overall, you can receive benefits in purchasing a term life insurance policy.

You should expect to pay somewhere between 0.5% to 1.0% of your loan amount in yearly premiums for private mortgage insurance (PMI). A mortgage worth $200,000 works out to an extra $2,000 each year in additional expenses. Getting rid of PMI as soon as possible is the best course of action because it does not give any advantage or security to the borrower.

Decreasing Payout

The mortgage life insurance payout often matches the balance of your mortgage. However, you will still have the same premium.

Difficulty in Canceling

The moment your loan-to-value proportion drops below 80%, you’re unlikely to cancel your private mortgage insurance policy. Several mortgage lenders ask clients to submit their proposals through a formal letter when requesting a PMI cancellation. In many cases, companies also necessitate an official evaluation after receiving the request or suggestion. They may refuse your plea for PMI cancellation if home prices have fallen in your neighborhood.

Consider mortgage insurance coverage if you have problems making your monthly payments on your home loan. You can always try investing in mortgage insurance and eventually have the means to own your property.

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