Types of mortgage insurance include private mortgage insurance and mortgage cancellation insurance.
1. Private Mortgage Insurance
PMI is an insurance company that guarantees payment to the mortgage company. It is generally required when you have little equity in your home and is based on a percentage. For most policies, once the balance drops to 80% when compared to the original home value, the PMI can be cancelled. Likewise, the mortgage payment drops accordingly. The mortgage company requires you to request the cancellation when the loan balance drops to 78% of the original value (or ½ of the time of the length of the loan has passed) , the PMI must be cancelled. For more information on this process, visit this site. FHA and VA mortgages are treated slightly different in addition to loans that include PMI in the interest rate. See why on this government website.
2. Mortgage Cancellation Insurance
This is a life insurance policy that pays the bank in the event of the insured individual’s death. There is a disability version of this type of insurance as well where the payments are made on the insured’s behalf when the individual is not able to work due to a disability. Regular life and disability insurance can perform the same function.
In Regards to Taxes and Insurance:
These items are often collected within your mortgage payment and escrowed. The insurance portion of these items is homeowner’s insurance. It is a property policy that covers the structure and reimburses the homeowner (and their mortgage company) from costs associated with wind, hail, lightning, fire and any other perils damage. It won’t pay any mortgage/house payments for you nor cover the bank in case you can’t or don’t make payments.
If you die, you may leave (through your will) the house to an heir. The heir inherits the house and the mortgage payments. If the heir doesn’t make the payments, the bank will foreclose and resell the property to cover their loss. With no will, the distribution of your property is convoluted and controlled by law. Your wife or husband will end up co-owning the house with your children. Big mess. Get a will!
Life insurance can also cover the cost of mortgage insurance. For more information speak with Hettler Insurance Agency!