Mortgage Insurance: Playing it safe

Taking out mortgage insurance for your home loan is a two way strategy aimed at protecting the loan applicant and the loan company. This is a way of guaranteeing the insurance company that they will get their loan amount in the case of the untimely death of the loan applicant. This mortgage insurance indemnifies the next-of-kin of the loan diseased from having to repay the loan amount to the loan company or the mortgage insurance company. The mortgage insurance company will repay the loan amount that is outstanding and release the property from the mortgage and the next-of-kin of the applicant will become the rightful owner of the property without any liability.

There is a premium to pay for a mortgage insurance much like any other insurance such as property insurance and life or medical insurance. Because of this mortgage insurance most mortgage companies offer loans at lower rates of interest because the risk of losing the loan amount is considerably lower. However, it may not be true to the repayment plan that the loan applicant has to undertake. The mortgage repayment every month along with the insurance premium usually escalates the cost of the home loan. Now, repaying the loan is not the only risk the mortgage insurance policy covers, many mortgage insurance policies also cover the insured's risk of losing his or her job and not being able to repay the loan. This risk is usually covered for a period of one year and could be invoked if the insured has lost his or her job due to some illness, accident or for some unforeseen circumstance. However, the insurance company is wise to individuals who can and do take advantage and voluntarily give up their job or are fired for some legitimate reason; in this case the insurance can be denied.

The mortgage loan is a boon to both, the borrower as well as the lender. Without the mortgage loan in the event of the death of the borrower, the loan company will and does approach the next-of-kin to repay the loan in installments or in full as they deem fit. This can be a very difficult situation in a more difficult time. With mortgage insurance this situation does not arise at all. Thanks to mortgage insurance, mortgage companies are willing to extend loans for properties for as little as a 5 percent down payment from the borrower. Mortgage insurance has made home loans safer and more convenient - not to mention cheaper in the long run.