We are in a buyer's market today in many locations regarding housing. Thanks to millions of foreclosures and an inability to get the price people once hoped their house would be worth, it is possible to get good deals on a fairly new house. The key is largely in your credit worthiness and in your ability to prove that you will be able to make the payments.
Banks are loaning money—but very cautiously. Consequently, even if you qualify for a loan, you may be required to purchase additional insurance. There are two types of mortgage insurance. You have the loan insurance which is simply an insurance premium added to your mortgage payment to guarantee the loan if you should lose your job or default on the loan for any reason. It ensures that the bank will get their money. Most large mortgages require this type of insurance, which can, however, be dropped, once your principle gets a specific percentage below the value of the property. That's because the law assumes that once your principle reaches a certain point, the bank would be able to foreclose and sell the property without loss.
The type of mortgage insurance over which you have a lot more control is Mortgage life insurance, sometimes called mortgage protection life insurance. This is a type of insurance that will pay the bank if you should die while money is still owed on the house. In many cases, it can be purchased as life / disability, meaning that if you become disabled, the insurance will make your house payment. Again, you pay the premium, but the bank is the beneficiary.
Mortgage life insurance is usually a type of decreasing term life insurance. That is, you will pay a level premium for the duration of the term, but each year the benefit drops to keep pace with the amount left on the mortgage. You may wonder why anyone would want insurance that decreases in benefit; the truth is, decreasing term comes at very low rates with even higher face values possible than level term. The insurance company will pay a small fortune if you die in the early years of the policy, but they may also do some health underwriting to ensure that you are not likely to die any time soon, barring some sort of accident. Thus the risk to the company is all in the early years while you are young and healthy. As you get older, the amount the company will have to pay drops significantly.
Of course, we should clarify that decreasing term is remarkably cheap if purchased through a private company. When purchased through the bank as part of your mortgage, it is often much more expensive than one might expect.
Mortgage life insurance makes a lot of sense, especially if you have a high mortgage and must rely on either one high wage earner or on two people to make the payments. An unexpected death could mean the loss of the property and possibly even bankruptcy.
There is, however, a better way that purchasing mortgage life insurance through the bank. Most mortgage companies will allow you to purchase term life on your own, which you will find to be vastly cheaper than what the bank offers. You can expect to be asked to make the bank the primary beneficiary, but if you purchase level term and money is left over, it will go to your family. Also, although the principle of your mortgage will decrease over time, your life insurance will remain unchanged for the period of the term. That means more for your family if something happens to you. Finally, when the mortgage is paid, you will be able to change your beneficiary to your spouse or other family member if you choose to continue the insurance. Check our friendly service for a quote on individual mortgage life insurance.