If you’re shopping around for a home loan, you’ve probably received multiple offers for mortgage insurance. In fact, you may even be wondering what it is. Some loans actually require homeowners to obtain mortgage insurance before they finance a home. So what exactly is mortgage insurance?
MPI, PMI – What Does It All Mean?
Mortgage protection insurance, usually referred to as MPI, protects your mortgage payments in several ways. Consider it a type of supplemental life insurance. It protects your mortgage if job loss, disability, or death occurs. The second type of mortgage protection, private mortgage insurance (PMI), is required if you put down less than 20% down payment on a home. This type of insurance pays the bank if your home goes into foreclosure. Usually, it’ll pay your mortgage payments for up to 6 months if you cannot make payments yourself. Both types of mortgage insurance vary in cost based on your age, health, and occupation.
The main benefit to mortgage insurance is it’s not hard to obtain. There are certain drawbacks, however. MPI is a decreasing benefit: even though you’re paying a fixed premium, the final payoff decreases as you pay your mortgage. If you end up using MPI, it’ll pay off your mortgage in a lump sum instead of paying it to you, which affects your credit and doesn’t gain interest.
So who should purchase mortgage insurance? If you’re unlikely to get regular life insurance due to your age, health, or occupation, MPI is easy to acquire and protects you and your family from losing your home.