Will Mortgage Insurance Prevent Foreclosure?
The purpose of mortgage insurance is to keep homeowners from losing their property by providing the funds needed to keep up with monthly payments when they cannot. It generally begins payments immediately after the homeowner’s claim is processed even if the claim is accepted after the event that caused the problem.
Most people take out mortgage insurance to provide security in the event of a job loss, serious illness or accident. In most cases, the insurance will even cover payments that were not made before the claim was processed to protect the homeowners credit. In case you haven’t already guessed, mortgage insurance is not inexpensive.
It’s best to shop for it online rather than through a broker if your aim is to find a policy that you feel is affordable. It definitely is possible to obtain high quality mortgage insurance at an acceptable price if you put in the time researching the companies and their costs online or through your local Yellow Pages directory.
Most real estate agents can also recommend good companies if you ask them to. Be sure to request quotes from each company you consider, compare them and be certain to fully understand how they work. If you can, ask an attorney to look over the contract before you sign it and alert you to any hidden pitfalls.
There are risks with mortgage insurance. If you fail to repay the loan which is secured by your property, you could lose the property through repossession or foreclosure which you bought it to prevent in the first place.
It is extremely important to file your claim for payments from your mortgage insurance as quickly as possible after the need arises. If for any reason the insurance company fails to make one or more retroactive payments, you could suffer legal problems that would affect your property as well as your credit. So if you lose your job tomorrow, file a claim for the mortgage insurance within a few days. Don’t let it slip your mind.
Mortgage Insurance Protects Your Lender
Private mortgage insurance actually protects your lender in the event you can’t make your payments. The proceeds go directly to the lender and not to you. These payments help you prevent default that can lead to foreclosure proceedings. Some lenders insist that you carry mortgage insurance when they have a higher-than-normal risk by allowing you to receive the loan without a large down payment. You benefit only by being able to get a mortgage without the usual 15-20% down.
The average cost of this type of insurance is around one half to one percent of your loan balance. For example, a $200,000 loan with $10,000 down would cost you around $85.00 per month or just a few dollars over $1,000 per year. And be advised, while you can deduct the interest you paid on your mortgage, these payments are not deductible.
You also have the right to cancel your private mortgage insurance once the equity in your home reaches 20% equity. Mortgage lenders are also required to cancel private mortgage insurance when a 78% loan-to-value ratio is reached. These factors are legally required under The Homeowner’s Protection Act of 1998.