We’re all aware of what a mortgage insurance is; mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. Typically, borrowers making a down payment of less than 20% of the purchase price of the home will need to pay for mortgage insurance.
But what happens to the mortgage if the policyholder dies? The mortgage needs to be paid off, so what is the other option in such a case?
This is why mortgage protection insurance is a good idea.
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Mortgage Protection Insurance
Buy a term life insurance policy for the measure of your home loan. At that point, in the event that you die during the “term” when the policy is in force, your friends and family get the face value of the policy. They can utilize the returns to take care of the home loan. These are usually tax-free.
Actually, the proceeds from your policy can be used for any purpose your beneficiaries choose. The money can be used to pay off mortgage debt, if your mortgage has a low interest rate, they may want to pay off high-interest credit card debt and keep the lower-interest mortgage. Or they may want to pay for home maintenance and upkeep.
What is the difference between Mortgage Protection and Life Insurance?
Now that we’re clear on what mortgage protection is, and we know what life insurance is, there is a common confusion of what the difference between the two is.
In life insurance, a tax-free amount is paid to your family if you die, but in mortgage protection insurance, the money is paid to your bank or your house broker to clear off the mortgage.
In life insurance, the amount of cover is fixed, where in the latter, it reduces over time. Since you’ve been paying, it reduces. (This is also known as the Decreasing Term Protection).
Life insurance costs more than mortgage protection (this is another reason why your bank may only give you a life insurance option without even discussing mortgage protection possibilities. So know your facts!)
To settle this debate on mortgage insurance vs life insurance, a lot of insurance experts say that it is better to pay off your house lender or a proper insurance company and sign your mortgage insurance plan with them. Banks usually have their own insurance policies where they would force you to sign up so that all of your mortgage is paid to them! They are likely to avoid transparency in the transaction and may even charge higher premiums.
Having a bank involved in the insurance policy causes a lot of documentation complications as well, so it is better that a proper insurance company with the right amount of expertise to guide you on all your possible options.
You would definitely want to do that, trust me.
Can a Joint Mortgage be transferred to one person?
Transferring a joint mortgage to one single person is known as the ‘transfer of equity’. Whatever the reason why one person decides to leave the agreement, you will have to make sure the documentation process starts immediately.
The first step to remove a name from Mortgage is taking your lender into confidence and seeing what they feel about the new arrangement. There is a chance that the lender may be reluctant to release one source of income from the mortgage loan, but you should give them a proof of funds or some other reliable income which supports that you will be able to pay it back.
Only after the lender agrees and the parties agree on the transfer, then only it is possible. The ownership rights and further payment procedure will then move on to the person still in the equation. It is essential to know that the lender is under no obligation to approve the transfer of equity and may also demand revaluation of the house.
The most significant risk for the lender is that earlier, the Mortgage was decided against two people’s incomes, and now it is being reduced to just one person. Why should the mortgage lender trust that one person will be able to pay back the loan? And to be honest, they’re not wrong.
Best Mortgage Protection Insurance Companies
Here is a list of all the best mortgage protection insurance companies in 2020 that allow mortgage protection policies.
|LENDER||LOAN AMOUNT||LOAN TERM||APR RANGE||BEST FOR|
|Discover||$35,000–$200,000||10 to 30 years||3.99%–11.99%||Low rates|
|BMO Harris Bank||$5,000 and up||5 to 20 years||4.49%–Unspecified||Different loan options|
|KeyBank||$25,000–$150,000||5 to 30 years||6.64%–Unspecified||Homeowners with limited equity|
|Spring EQ||$25,000–$500,000||Up to 30 years||5.205%–Unspecified||Homeowners with average credit|
|Flagstar Bank||$10,000–$500,000||5 to 20 years||5.88%–Unspecified||Flexible loan terms|
|U.S. Bank||$15,000–$750,000||Up to 30 years||4.05%–Unspecified||Low fees at a national bank|
|Navy Federal Credit Union||$10,000–$500,000||5 to 20 years||4.99%–Unspecified||Service members|
|Frost||$2,000 and up||7 to 20 years||4.49%–5.64%||Low fees at a regional bank|
|Connexus Credit Union||$5,000 and up||5 to 20 years||4.482%–Unspecified||Branch network|
|Regions Bank||$10,000–$250,000||7, 10, or 15 years||3.25%–11.625%||Customer experience|
Note: Sample rates have been extracted online, courtesy of BankRate.
Mortgage Life Insurance Calculator
You must have searched the internet for mortgage life insurance quotes, but you must have had a really hard time. Finding an accurate quote is a really tough job, because insurers don’t quote them online on websites anymore.
What you can do is look for a quote online, answer simple questions about your age, health and you can easily get a rate. You can use this mortgage life insurance calculator online via Confused.
From this tool, you can find all sorts of mortgage protection life insurance quotes and find an estimate of which option to go for. Of course money is very important in such a situation and getting a quote will only make it easier for you to decide, before banks can take advantage of you.
Do I need Mortgage Protection Insurance?
All things considered, your home loan is your most expensive outflow every month. In the event that you quit getting a pay due to being unemployed, would you be able to stand to continue paying your mortgage? On the off chance that the appropriate response is no, you should consider getting a mortgage protection insurance.
It merits contemplating since, supposing that you can’t pay your home loan, you could hazard losing your term.
Having mortgage protection insurance implies you’d get a month to month pay for a set measure of time on the off chance that you were unable to work. For instance, your mortgage protection insurance strategy may allow both of you years of regularly scheduled installments. Different approaches offer six month installments, yet most strategies pay out for around a year.
Most back up plans let you pick a payout that covers your month to month contract reimbursements precisely. Some home loan protection suppliers additionally let you add cover for your bills. For instance, this may be an extra 25% on top of your home loan reimbursements.
There are likewise some mortgage protection insurance that pays out depending on the size of your compensation. For instance, you could get contract insurance cover for half of your compensation.
A mortgage protection life insurance is simply to pay off a mortgage debt of a policyholder in case they die.
People typically ask for mortgage coverage because in an untimely death, if their family can’t pay off mortgages it could lead to consequences, such as foreclosure in an extreme case. And to avoid putting that sort of financial debt on families, people often opt for mortgage life insurance.
But if you don’t have any dependents, this is a good way to have your mortgage paid.