There are several types of home mortgage protection. Some are designed to protect the lender should a buyer default on a loan. Others protect the homeowner in the case of job loss, injury or death. Costs for mortgage protection vary depending on the amount of the mortgage, the homeowner’s age, health and occupation.
Private Mortgage Insurance (PMI)
Private mortgage insurance, or PMI, protects the lender should a buyer default on the loan. Normally, a lender requires a buyer to put 20 percent or more as a down payment on a home. In some cases, a lender will offer PMI in lieu of the 20 percent payment. Once the mortgage has been paid below 80 percent of the value of the home, PMI may be removed. Recent federal regulations require lenders to notify the homeowner when the principal has dropped below 80 percent.
Mortgage Protection Insurance
Mortgage protection insurance, or MPI, is also known as mortgage payment protection insurance, or MPPI. The policy is basically a life insurance policy that pays the mortgage if a homeowner becomes disabled, loses employment or dies. Some MPI policies only cover the death of a mortgage holder, sending a check directly to the mortgage company to pay off the balance so that the heirs are left with a home unencumbered by a mortgage. In some cases, the company will pay if a homeowner becomes disabled or unemployed, paying the principal and interest payments directly to the mortgage company. Normally, those payments are for a specific amount of time, usually six months to two years.
Mortgage protection insurance provides protection for the homeowner in case of death, disability or job loss, while other types of insurance protect the lender should the homeowner default on the loan. In most cases, mortgage insurance is inexpensive and can provide peace-of-mind to homeowners that their mortgage will be covered should the unthinkable occur.