Mortgage Insurance

What is mortgage?

Before delving into what mortgage insurance means, we shall try to find out what mortgage means. A contract of mortgage is an agreement between a lender and a borrower whereby the former (lender) acquires the right of ownership over the borrower’s property in the event he fails to make good the transaction by repaying the loan money plus the interest.

It can be in the manner of mortgage loans whereby monies are loaned for the purpose of buying homes or houses or in the form of mortgaging or staking ones existing property for the purpose of getting a loan

Meaning

Mortgage insurance is a type of policy that serves to protect the lender in the event that the borrower defaults in repayments.  Or is otherwise unable to fulfill the obligations in the contract. The terms of the policy can also afford protection to the lender in the event the borrower dies. There is also a package that protects even the heirs of the borrower in the transaction in the event he dies without making a complete repayment.

Types

There are four types of mortgage insurance and they include;

1. Private policy
2. Mortgage title insurance
3. Qualified mortgage insurance premium
4. Mortgage life insurance

Private policy

This is the type of policy which the borrower is required to buy most times as a condition for accessing a conventional mortgage loan. In this sense, the lender requires the borrower to take out Private policy as a re-condition for a grant of a loan facility. And just like other kinds, it serves to protect the lender and not the borrower.

Mortgage title insurance

This type serves to protect the lender against loss that may arise from a successful adverse claim of ownership by third parties over the property which is the subject of the transaction. Furthermore, it also protects the lender in a situation of invalidation of a sale of mortgage property from adverse claimants to title. In order words, this type protects a beneficiary of the policy against losses if the property belongs to a third party. So many times, lenders despite making due diligence such as title search to unravel encumbrances to the property still miss out some important pieces of information. This class of policy operates to provide indemnity in the event the miss in details results to damage to them.

A title search also verifies that the real estate being used belongs to the borrower and not to another person.

Qualified mortgage insurance premium

This type is applicable in the United States. Thus, when one gets a United States’ Federal Housing Administration mortgage, is a requirement that he/she will pay what is called qualified mortgage insurance premium, which provides a similar type of insurance. It is compulsory in the U.S that everybody who has a Federal Housing Administration mortgage must subscribe to this class of insurance policy notwithstanding the level of their initial payment.

Mortgage life insurance

This is a type of the policy that serves to provide insurance protection to the heirs or beneficiaries of the  property. This protection comes in the circumstance where the borrower dies without making full payment of the sum/loan. Here, the insurance policy may stipulate that the lender or the heir gets a pay off. But it all depends on the terms of the insurance policy.

The Essence of Mortgage Insurance

Mortgage plan operates to lower the risk of the lender who is advancing loan to the borrower. It sometimes comes with the borrowers making a down payment of less than 20% of the purchase price of the mortgage property. It protects the lender and not the borrower in the event the later is unable to make repayment of the loan. So that in the event of foreclosure the lender can fall back on the mortgage property to recover the loan sum.

Benefits of mortgage insurance

Mortgage insurance puts the borrower on his toes of making good his financial obligations to the borrower. It enables him to repay all or a portion of his financial obligations in the event of death. Furthermore, it provides a fall back to the lender in a mortgage transaction in the event the borrower is unable to repay the loan sum.

Conclusion

Flowing from our discussion so far, it is deducible that;

1. Mortgage insurance is policy that protects a lender in the event the borrower defaults or dies. Defaults in his repayments, or is otherwise unable to live up to his contractual obligations in the transaction.
2. There are four types of the policy which include private policy, mortgage title insurance, qualified mortgage insurance premium, and mortgage.
3. That as a matter of fact, mortgage policy simpliciter is not same with mortgage life insurance which protects the heirs or beneficiaries of a mortgage property in the event the borrower passes on with paying up mortgage.

It is also worthy of note that there are several benefits with buying this type of insurance policy. it is therefore advisable that we make it a priority to buy the policy to be able to reap the benefits accruable from it.

Similarly, always endeavor to read carefully through the policy terms to ascertain the level of coverage. And other hidden terms. you may want to browse online to find out the insurance company that has offers that best suites your need. and possibly for a lower offer of premiums.