Mortgage Protection Insurance – The Essentials
Mortgage protection insurance is a form of home insurance that covers the borrower if they default on their mortgage loan. For borrowers, this lets them know that even if they don't have enough money to cover the monthly installment payments and they are unable to pay for it themselves, there is someone else footing the bill.
For lenders, this creates more risk management and prevents defaults and foreclosures from happening in the first place. It also prevents damage from happening as a result of owner's negligence or buyer's remorse, which can be costly for both parties.
What does mortgage protection insurance cost? Mortgage protection insurance only costs more for borrowers who live in high-risk areas like flood zones or areas with frequent earthquakes. It costs less for borrowers who live in low-risk areas.
What does mortgage protection insurance cover? Mortgage coverage is limited to the amount borrowed for the house. The most common types of mortgage coverage include: Owner's policy (also known as an HO-4) – This protects only the owner of the home, which is usually a lender. This type of coverage also has higher limits than other types of coverage. The most common reason this type is used by lenders is because it is less expensive to protect one party alone than two parties.
Conclusion:
The real value of the mortgage insurance is in its ability to protect the lender from a broken borrower. A loan default can happen for various reasons, and without protection for the lender, foreclosure and repossession becomes an option. This can be an expensive option both financially and reputationally for a lender.
Aside from protection, there are other ways that mortgage insurance can help borrowers. Foreclosure is never a pleasant process but with mortgage protection insurance, it takes much less time because there is no need to find new owners (which could take months) while resolving all issues involved in foreclosure proceedings. This protects both parties from unnecessary risk, cost and time involved in foreclosure proceedings.