Mortgage insurance is essentially a cover for the lender of mortgage loans against default of repayment by the borrower. There are two main types of mortgage insurance, Mortgage Life Insurance and Private Mortgage Insurance. Mortgage Life Insurance is a cover for the lender of the mortgage loan against events like the disability or death of the borrower.
Private Mortgage Insurance also known as Lenders Mortgage Insurance covers the lender for a part of the borrowed amount against default of repayment by the borrower. When the borrower is unable to repay the loan and the lender is unable to recover the costs even after selling the mortgaged property.
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Mortgage insurance is usually required in one form or another on all loans that have a LTV (loan-to-value) higher than 80 %. Mortgages above 80 % LTV known as “No MI” are usually made at a higher rate of interest.
Depending on the type of mortgage insurance, the coverage may be for a percentage of or virtually the entire mortgage loan. The cost of a mortgage insurance policy is covered by the charge paid by the borrower to cover an insured mortgage.
This insurance covers all or a certain percentage of the loan amount against any default in repayment by the borrower. In the case of mortgages insured by the FHA (Federal Housing Administration), this amount is an annual rate of one-half of 1 percent paid by the borrower on a monthly basis.
Mortgage insurance is an important part of the whole process of mortgage finance and a number of factors determine the successful amortization of a particular mortgage. Since mortgage finance addresses a critical area of an individual life, his home, it involves very careful handling. For instance, in the case of a borrower who has just lost his job or his source of income is in disarray, the mortgage company does not take any drastic measure like immediately serving a notice on him to vacate the house. Rather, his crisis is factored into the mortgage deal right at the beginning when adequate attention is paid to safeguard measures like Lenders Mortgage Insurance, Mortgage Life Insurance, Job Loss Mortgage Insurance, etc.