Many people are confused because of all the types of insurance policies that are called mortgage protection. Some advertisements for mortgage life insurance can be a little confusing too.

Home Owners Foreclosure Insurance

However, if you want to cover your actual mortgage against the risk of unemployment and the inability to make mortgage payments, you may be better off with a homeowners insurance policy with a foreclosure insurance rider! This additional rider will add to your premium, but it may pay some or all of your mortgage payments while you are unemployed.

There will certainly be qualifications you must meet in order to get your claim paid, but it can be a home saver for eligible home owners.  For example, the rider could have a waiting period that the home owner must meet in order to qualify. A policy may also be limited to those employees who are also eligible to collect state unemployment benefits. Before you add foreclosure insurance to your home policy, make sure you would qualify to get a claim paid!

This product, usually called Private Mortgage Insurance (PMI), is really taking care of a loan company in case a borrower defaults on a home mortgage. It does not, however, protect YOU – as the person getting the loan. That’s why we are posting this article on avoiding PMI if you can!

Note that PMI is not the same as Mortgage Protection Insurance (which is life insurance).

You Are Still Responsible For The Mortgage!

 It will not remove your responsibility for a loan, and it will not protect your credit. It usually required if a borrower cannot put down twenty percent of the home purchase price. Borrowers like it because it helps reduce their risk.

To be fair to lenders, they are taking a lot more risk when they lend to people who do not have twenty percent to put down. Many factors may prevent them from getting the full purchase price of a home back if a borrower defaults. In addition, the type of borrower who can come up with a larger down payment may have more resources. They will be less likely to default.

When Does PMI Help a Borrower?

Lots of people take this coverage in order to qualify for a loan. It is not always a bad option. Sometimes it may be the only way to qualify for a mortgage on a home that makes sense to buy. For moderate income families, the premiums are also tax deductible, so the real cost is less than the price. You need to consider these factors when you sit down and figure out if a certain loan and home purchase is the right one for you.

Why Avoid PMI?

Cost is the biggest reason to look for another option. The premium could be about one percent of your loan per year. This is simple to illustrate. For every $100,000 of your loan, you can pay $1,000 a year. Spread over monthly payments, this is an extra eighty dollars. For a $250,000 loan, this is almost $200 a month. Look at how much harder it will be to budget for mortgage payments if you have to pay for this.

And of course, these payments mean that less of your check actually goes towards building up your equity. So it can take you longer to ever get to that 20% equity point where you can cancel the PMI!

How Can You Avoid Private Mortgage Insurance?

There are some ways to avoid this extra payment, and you will want to consider these options.

Put down 20%. If you have the money, consider starting your loan with more equity. If you do not have enough to put down twenty percent, maybe you should consider purchasing a cheaper home. We have all seen how much trouble many home owners have had in recent years because they did not have much equity in their homes.
Piggy Back Loans. This used to be a more common option, but the recent mortgage crisis e have shown us that it is a risky more. Borrowers would get 80% loans, a smaller loan for 10%, and then put down 10% in cash. The smaller loan may have a higher interest rate, but it will help a borrower avoid the extra coverage.
Local and State Programs. Some communities have first time homeowner programs which help borrowers find lower interest loans, or at least loans for the down payment.
FHA or VA Loans – If the government will insure the mortgage, you may also be able to get out of PMI, or. at least pay a lot less for it. If you have military service or a moderate income, look into these programs.

Again, sometimes you will find that just taking out private mortgage insurance is the right thing to do. But before you choose a loan, be sure you understand your alternatives.

Many people get very confused when they hear the term mortgage insurance. They get it confused with homeowners insurance sometimes. Other times, people think it sounds similar to PMI (Private Mortgage Insurance). But these are not what the term – mortgage protection insurance – refers to.

So take a moment to understand these 3 very different products. That knowledge should save you time and money.

PMI – This is a product that some lenders require you to buy to protect your loan in case you default. It does not really protect the borrower (you), but instead protects the mortgage company.

Homeowners Insurance - This product covers your home against damage or liability it claims. Most of these policies include coverage in case of a loss to your actual home, personal property, etc. It also should include liability coverage in case a visitor makes a claim against you. Many policies also include some sort of relocation plan in case you cannot live in your home while it is being rebuilt or repaired.

You can find top homeowners insurance company quotes.

Mortgage Protection Insurance – Mortgage insurance is also called mortgage life insurance sometimes. It is actually a term life insurance policy that is purchased to help pay off the loan in case one of the breadwinner(s) passes away. Some policies may also include the option to add disability insurance so the insured person will have money to make loan payments if they cannot work because of a disability.

Some of the top insurance companies market term life policies that are aimed at home owners. They try to make it as simple to apply for as possible, and you can find policies which provide hundreds of thousands of dollars worth of coverage that do not even require a medical exam. This is what is usually meant by Mortgage Protection Insurance.

Compare Mortgage Life Insurance Quotes Online

If you have recently purchased or refinanced a home, you may get some offers in the mail for insurance to protect your home against your death, disability, and (sometimes) critical illness. If this has interested you, why not run free online mortgage life quotes to compare companies before you select a particular agent?