Mortgage Insurance Protects Bank Forced Repossess Your House Loss
Mortgage insurance protects banks forced repossess your home if you lose your job or suffer a financial crisis. It's not as old-fashioned and outdated as you might think. Here are the top ten things you need to know about this product.
1) Mortgage Insurance is insurance that the lender buys in order to help protect them should a borrower fail to pay their mortgage loan back when it comes due, such as if they lose their job or have some other type of financial crisis that is out of their control.
2) Mortgage insurance pays out a percentage of the total amount owed so that the borrowers don't have to end up with losing everything they had and being forced into bankruptcy by their lender because they missed one payment .
3) Lenders buy the insurance and pass on the costs to you. They don't sell the insurance.
4) You are required by law to have mortgage insurance if your loan is more than 80% of a million dollars or more .
5) There is no maximum amount you can get for it. That means your lender can charge you extra for it. You are also allowed to cancel it at any time, although most lenders will not accept this because they make money on it, and a lot of it from mortgage insurance companies who buy up large amounts of loans each month then resell them.
6) The lenders typically aren't the ones who buy it. They just pass the cost to you. It's usually a mortgage insurance company that does.
7) Mortgage insurance companies get a monthly check from your lender for as long as your loan is active and you make money on them every month without any risk what so ever . In fact, there is not even any real work involved. They have computer programs that do all of the work for them and track when monthly payments are made so they don't have to pay out any money if they can help it. All they do is sit around and count their money when there are no claims being made .
8) According to the Department of Housing and Urban Development, the government's agency that governs mortgage transactions, your lender can charge you up to 5.5% for your mortgage insurance . That's a lot of money.
9) If you get it, you are usually required to purchase an amount each month that is equal to at least 1% of your loan balance when it comes due each year for as long as you own the home . So if you get a $200,000 loan at 5%, that means they can charge you up to $1,000 a month for mortgage insurance alone from day one.
10) The lender doesn't have to tell you how much you are being charged each month, and typically won't be able to tell you even if they do know . So there is no way for you to know if you are paying too much or not.
11) If your financial situation changes and your income drops, it can be difficult to get the mortgage insurance payments lowered because of the way most insurance companies do business. Typically they refuse to change it unless the loan balance is lowered as well. If that happens, then it's going to hurt your credit score . This means that if your income goes down, it's possible that you might end up owing even more on the house than when you first bought it because of this alone .
12) As a rule of thumb, it's best to do everything you can to avoid mortgage insurance altogether . Not only is it expensive, but there are other options available that won't cost you nearly as much .
13) It's a good idea to find out how much you will end up paying for your mortgage insurance once all is said and done before you even fill out an application for a loan . You can do this if you ask the lender in advance what the cost will be to buy the insurance. If they don't have an answer for you, then this is something that probably means it's time to go somewhere else because chances are they'll end up charging too much when all is said and done.
14) One of the most common reasons that people have mortgage insurance is because they are having trouble getting a loan approved due to their credit history . If this is the case, then you can't cancel your mortgage insurance once you get your loan, but you can always refinance if things change and you need to do so.
15) Mortgage insurance isn't always a bad idea. If you are getting a loan for more than 80% of the asking price for a house of $350,000 or more, then it's almost a given that you will have to pay extra for this product. However, if you're getting a loan for less than 80% of the asking price, it's unlikely that you will have to pay any extra for mortgage insurance.
16) Worst case scenario, if you end up paying too much for mortgage insurance and are forced to sell your house and lose your equity because of it, then you can always get back at least part of what you lose by refinancing later on and buying another house. You can also consider moving to a different area or moving back into your home with someone who is willing to move in with you and help pay the mortgage instead. Just because there are people out there who make bank on this product doesn't mean that it's right for everyone . Not all lenders have the same kinds of rules for things like this either . Some will give you a break if you are going through a divorce and need to refinance into an loan that is less than 80% of the asking price .
17) If you do get your money back, or end up saving money, then consider using it to pay off some debt like credit cards or student loans . That way you will still make a profit, even if it's just some extra cash in your pocket or a few hundred dollars per month.
18) Stay away from any lender that wants to sell you mortgage insurance in the first place . This generally means they have a reputation of being unethical and capricious . There's no reason to buy a product that you know nothing about .
19) If you can, you should consider getting rid of your mortgage insurance. The longer you wait to do this, the more likely it is that you will end up paying more than you're supposed to because your lender ends up buying up all the available loans in the market and charging everyone who has it for it , which means that everyone else pays more money for these products, as well as money just to pay for credit scores and other things that lenders are allowed by law to charge for.
Conclusion
So there you have it. These are just a few of the things you should know about mortgage insurance before you decide whether or not to go ahead and try to get one. If nothing else, this information should help people understand more about what they are paying for when they pay for this kind of insurance, and what it means for their credit scores if they do end up having to pay too much or something else happens that makes it necessary for them to refinance. Hopefully this has been helpful to at least a few people out there.
It pays to know what your lender is doing . Although most of them are honest and are willing to work with people who need help, some aren't as fair as others .