Mortgage insurance is a type of insurance that helps protect lenders against losses if a borrower defaults on their mortgage while they are alive. Mortgage Protection Insurance is a type of life insurance that helps protect a borrower pay off a loan in the case of premature death. This guide will discuss the different types of mortgage insurance and what you need to know about them.
- What Is Mortgage Insurance, And How Does It Work?
- What Are The Mortgage Protection Insurance Services?
- What Is Mortgage Insurance Premium (MIP)?
- What is Mortgage Protection Insurance, And How Does It Work?
- Mortgage Insurance Vs. Mortgage Protection Insurance
- Mortgage debt is on the rise
- Is Mortgage Insurance Required?
- Is mortgage protection insurance required?
- Do you need mortgage protection insurance?
- Why you shouldn't buy mortgage protection insurance
- Mortgage Protection Life Insurance (MPI) vs. Term Life Insurance
- The Best Insurance Companies To Protect Your Mortgage
- Mortgage Protection Insurance Calculator
- Next Steps
- Mortgage Life Insurance Quotes
- Frequently Asked Questions
What Is Mortgage Insurance, And How Does It Work?
Mortgage insurance, also known as homeowners insurance or private mortgage insurance (PMI), protects the lender if you can’t repay your loan. This makes it possible for the lender to give you a loan that you might not have been able to get otherwise. However, mortgage insurance increases the cost of your loan. Therefore, if you must pay for mortgage insurance, it will be included in your total monthly mortgage payment to your lender or may be paid at closing in a down payment.
Different kinds of loans are available to people who want to buy a home but don’t have saved money. Depending on your loan, you might have to pay for mortgage insurance differently.
- Conventional Loan
- Federal Housing Administration (FHA) Loan
- U.S. Department of Agriculture Loan
- Department of Veterans Affairs (V.A.) Loan
What Are The Mortgage Protection Insurance Services?
Mortgage protection insurance (MPI) services are a type of insurance that helps homeowners pay their mortgage in the event of an unexpected event, such as death, disability, or job loss. These services typically provide coverage for a specified period of time, such as 5-30 years, and can vary depending on the insurance company.
The most common types of MPI services include:
- Death benefit: provides a lump sum payment to the homeowner or their beneficiaries if the policyholder dies, which can be used to pay off the outstanding mortgage balance.
- Disability benefit: provides a monthly benefit to help cover the mortgage payments if the policyholder becomes disabled and unable to work.
- Unemployment benefit: provides a monthly benefit to help cover the mortgage payments if the policyholder loses their job.
- Critical illness benefit: provides a lump sum payment to the policyholder if they are diagnosed with a critical illness such as cancer, stroke, or heart attack.
What Is Mortgage Insurance Premium (MIP)?
Mortgage insurance premiums (MIP) are paid by homeowners who take out mortgages backed by the Federal Housing Administration. Up until 2017, mortgage insurance premiums were also tax-deductible. However, in 2020, the Further Consolidated Appropriations Act of 2020 allows tax deductions for MIP and private mortgage insurance for 2020 and 2018, and 2019.
What is Mortgage Protection Insurance, And How Does It Work?
Mortgage protection insurance is life insurance that can help protect your family if you die before the loan is paid off and you can’t make your monthly mortgage payments. This policy will pay off your mortgage, which can help keep your family from losing their home if something unexpected happens.
Mortgage protection insurance can also be known as Mortgage Redemption Insurance.
Mortgage Insurance Vs. Mortgage Protection Insurance
The difference between mortgage insurance and mortgage protection is that mortgage insurance protects the lender if the borrower defaults on their loan. In contrast, mortgage protection insurance protects borrowers if they die before the loan is paid off. Lenders do not require mortgage protection insurance, but it can give you and your family peace of mind knowing that your home will be paid for if something happens to you.
Mortgage debt is on the rise
63% of homeowners in the U.S. have a mortgage payment. The average new mortgage balance in the United States is $260,386, and these numbers are increasing every year. With debt, it can be challenging for someone to pay back what is owed if they cannot finish their payments, which is why getting coverage is essential.
Is Mortgage Insurance Required?
Most people making a down payment of less than 20 percent on a home will need to pay for mortgage insurance.
Is mortgage protection insurance required?
Mortgage protection insurance is not required. It’s different than private mortgage insurance (PMI), which many banks or lenders will require you to buy.
Do you need mortgage protection insurance?
The inflexibility of mortgage life payouts means you’re usually better off with a regular term policy with enough coverage to pay off your mortgage. Then, when you die, your family has options:
You do not need mortgage protection insurance and are better off with a level-term life insurance policy. The term policy provides your family with a few options:
- Your surviving family members can pay off the mortgage with the life insurance proceeds and keep the remainder of the death benefit.
- They can choose not to pay off the home and continue making mortgage payments, having plenty of liquid assets at their disposal.
Why you shouldn’t buy mortgage protection insurance
- Lack of flexibility
- Declining death benefit
Term life insurance is a better option because it has benefits like mortgage protection insurance but has lower premiums, and beneficiaries can have more flexibility.
Mortgage Protection Life Insurance (MPI) vs. Term Life Insurance
Mortgage protection life insurance (MPI)
MPI is designed around your mortgage debt. It is often sold during the home-buying process. For example, suppose you pass away while on the active policy; the payout goes to your lender for the outstanding balance. Usually, as you pay off your mortgage and your balance owed goes down, then so does your coverage amount.
MPI Pros
- No medical exam
- Most people qualify
MPI Cons
- The payout amount is reduced over time, yet premiums remain the same
- The lender receives the benefit
- Protects only your mortgage
- Often costs more than term life insurance
Term life insurance
Term insurance is a type of life insurance that lets you choose the beneficiary, the amount of coverage, and how long it lasts. Term insurance provides coverage for a set period of time. It can cover your dependents’ needs or expenses like college tuition and medical bills.
Term Insurance Pros
- Covers all life expenses (up to your coverage limit during the policy term)
- Your beneficiary receives the benefit.
- Rates are based on your unique life circumstance.
- The payout amount doesn’t reduce over time while the coverage is active
Term Insurance Cons
- Sometimes requires a medical exam
- Not all people qualify
MPI vs. Term Insurance: Which is better?
A term policy is a good choice for many families because you can choose the amount of coverage, your beneficiaries, and what length of your financial commitments.
MPI is a better option than term life insurance when you can’t qualify for it. For example, this might happen if you have medical issues and need an exam.
The Best Insurance Companies To Protect Your Mortgage
The life insurance company’s financial rating and the coverage cost are the two most essential elements to consider when selecting the best term life insurance plan. Because all term life insurance plans operate similarly, it’s about ratings and price. The best life insurance companies to protect your mortgage are:
Mortgage Protection Insurance Calculator
A mortgage protection insurance policy is a life insurance policy that pays off your mortgage in the event of your death. It can give your loved one peace of mind knowing that they won’t have to worry about making mortgage payments if something happens to you. Our free mortgage protection calculator can help you find the lowest mortgage life insurance premiums.
Enter basic information about yourself and your mortgage, and we’ll compare rates from different insurers. We’ll also show you how much coverage you need to protect your mortgage. So get started today and give yourself and your family the peace of mind that comes with knowing you’re protected.
Next Steps
Request a quote today to see if mortgage protection insurance is the right fit for you. This life insurance policy can help give your family peace of mind if something happens and you can no longer make your monthly mortgage payments. In addition, you can know that your loved ones will be taken care of with mortgage protection insurance even if something unexpected happens.
Mortgage Life Insurance Quotes
Contact us if you need help purchasing a life insurance policy. The service is free of charge.
Frequently Asked Questions
Which type of life insurance policy is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured’s death?
A 30-year decreasing term is best suited for paying off the outstanding balance of a 30-year mortgage in the event of the insured’s death.
Is Mortgage Insurance Required?
Most people making a down payment of less than 20 percent on a home will need to pay for mortgage insurance.
Is mortgage protection insurance required?
Mortgage protection insurance is not required. It’s different than private mortgage insurance (PMI), which many banks or lenders will require you to buy.
Who offers the best mortgage protection insurance?
Banner Life offers the best mortgage insurance (term insurance) because of its affordable rates and financial rating of A+ (Superior) with A.M. Best.
How much is mortgage insurance?
Mortgage insurance typically costs between 0.25% and 0.50% of the loan amount each year.
How much does mortgage protection insurance cost?
The cost of mortgage protection insurance depends on several factors, including age, health, and the amount of coverage you need. For example, a 30-year life insurance policy for a healthy 40-year-old man can cost as little as $14 per month.
How long do I have to pay mortgage insurance?
You will usually have to pay for mortgage insurance for as long as you have a loan with a term of less than 20 years and a down payment of less than 20 percent.
Can I cancel my mortgage insurance?
You can usually cancel mortgage insurance once you reach 20% equity in your home. However, some loans require you to pay for mortgage insurance for the life of the loan.
Is a mortgage an annuity?
No, a mortgage is not an annuity. An annuity is an insurance product that can be used for retirement planning. A mortgage is a loan that must be repaid with interest.