Mortgage protection insurance isn’t new to someone buying a new home for themselves. These insurance policies, also known as mortgage payment protection, are designed to protect you from losing your home in the event of going off work due to sickness, meeting an accident or just losing the job. Almost every new home-buyer gets to know mortgage to insurance to protect their house from unfortunate events of life and needs to choose an insurance policy for the same. But not all home-buyers end up choosing an affordable insurance plan for them. Due to their limited knowledge about the policies, they often end up choosing a plan that someone in their family of the neighborhood had bought. However, each home-buyer may have their different insurance requirements and they need a policy that is made to fulfill those specific requirements. Here, we are going to talk about the most common types of plans and help you choose a cheap mortgage insurance for you.
Types of Insurance Plans
Mortgage life insurance offers a range of insurance plans with different payment options. Below, we are mentioning the different available plans along with the benefits as well as their constraints.
Borrower-Paid Monthly Mortgage Insurance
Under a borrower-paid monthly mortgage insurance, you need to pay the premiums to your lender and they will pay to the insurance provider company. Here, you can choose whether you wish to pay a fixed monthly amount as the premiums or you want to make a lump sum payment at the beginning and pay the rest amount in affordable premiums later.
Borrower-paid monthly premium provides a good option when you are willing to buy a home but you can’t pay the whole amount for the same. For the comparatively young buyers, this is a convenient option to buy their dream home. The best thing about such insurance plans is that these plans can be canceled anytime you wish to. Once your principal balance reaches 80 percent of original property value, you become eligible to request a cancellation for the same. Also, when this principal balance reaches 78 percent of the original property value, it will be canceled automatically. However, if you want to reach the cancellation status quickly, you have the option of paying a premium higher than required. However, these policies can prove a bit costlier in the long term.
You also have the option to go with borrower-paid single premiums where you pay a lump sum cash amount while closing or refinancing the loan. The positive thing about this type of insurance is that it proves very affordable in the long term and if you choose to refinance or move before completely paying off the loan, you may also get a partial refund on the amount you paid. The only disadvantage of having this plan is that it proves little costlier at the time of closing.
Lender-Paid Monthly Mortgage Insurance
Lender-paid monthly mortgage insurance is just opposite to what borrower-paid premiums are. Here, instead of the borrower, the lender himself pays the premiums in case you miss one. However, they don’t do it for free and increase the interest rate for the mortgage loan. These insurance plans are becoming popular among new home-buyers as they prove affordable in the long term and may offer tax benefits as well. However, the bad thing is that you can’t cancel a lender-paid monthly mortgage once you have bought it.
The above-mentioned insurance types, come up with different premium options that are mentioned below:
As the name fixed-rate mortgage says, you will need to pay a fixed monthly premium here that won’t change due to the inflation, market performances or any other reasons. These types of mortgage are helpful when you plan to own a home for more than 7 years or you want to keep the current interest rates as you fear they may increase in upcoming years. Also, if you prefer a stable premium to plan your monthly budget effectively, you can get online mortgage life insurance quotes for the fixed-rate mortgages.
Adjustable-rate Mortgage (ARM)
Adjustable-rate mortgages come with an interest that remains fixed for certain period and then changes periodically thereafter. This change in interest rates depends on financial index rate and the mortgage payments may vary according to the fluctuations in the index rate. If you have chosen a 6/1 ARM, this means the interest rates will remain fixed for first six years and will vary once every year after that. These types of mortgages are beneficial for those aren’t going to stay in a home for more than six or seven years. Also, if you believe it may come more expensive in upcoming years, you can go with the adjustable-rate mortgages.