Wednesday, December 18, 2013

Mortgage Insurance Explained

Mortgage insurance is insurance that protects your lenders’ interests. After you have been approved for a home loan, your monthly payments will be set, and you must make these payments on time every month. Sometimes, people fall on hard times and cannot make their payments even though they had every intention of doing so when they applied for their loans.

In the event that the above scenario occurs, you would be responsible for paying the remainder of the loan. However, it will be very unlikely that you will be able to afford to do so. For this reason, lenders require that Australians who are unable to offer a deposit of at least 20 percent of the purchase price have mortgage insurance.

If you are no longer in a financial position to make your monthly payments, your lenders will be entitled to seize the house and sell it. In some cases, the amount that they receive isn’t enough to cover what is owed on the property. If you have mortgage insurance, your lenders will receive payment for what you owe through the mortgage insurance policy.

How Much Does Mortgage Insurance Cost?

Generally, mortgage insurance will be paid in one payment when your loan is settled. The sum will depend on several factors, including the amount that you offer as a deposit and the type of loan that you obtain. In some cases, your lenders can add your mortgage insurance premium to the loan amount to reduce the sum that you will need to pay up front.

Is Mortgage Insurance Important?

Mortgage insurance isn’t necessary in 100 percent of the cases, but it can help you qualify for a home loan if you are unable to offer at least 20 percent of the purchase price as a deposit. The fact is that it’s not always possible for people to save 20 percent of the purchase price for the home of their dreams.

By obtaining mortgage insurance, Australians can borrow as much as 95 percent of what is needed to buy a house and only be required to offer 5 percent as a deposit. The money that you save from purchasing mortgage insurance can allow you to purchase a home sooner and have money to decorate as you see fit. You can purchase a home in a better neighbourhood by purchasing mortgage insurance. If you are buying a home that needs repairs, you will have more money to apply toward this expense, so mortgage insurance can be extremely helpful.

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