What is Mortgage Insurance?
How Does Mortgage Insurance Work?
Mortgage lenders assume a high degree of risk in connection with home loans. For this reason, lenders frequently purchase mortgage insurance plans. These are policies that compensate mortgage lenders for losses caused by payment delinquency as well as the death or debilitation of the borrower. For example, if the borrower for a $100,000 mortgage dies leaving a $40,000 balance on the mortgage, the lender's mortgage insurance covers the unpaid $40,000.
Lender's may also require borrower's to buy mortgage insurance (called private mortgage insurance, or PMI) when the borrower's down payment is less than 20% of the home's purchase price. Once equity in the house reaches 20%, the lender will drop the requirement.
Why Does Mortgage Insurance Matter?
Numerous insurance companies suffered and even folded because of the high number of claims on mortgage insurance policies during the subprime mortgage crisis of the late 2000s. The magnitude of the problem warranted the U.S. Treasury to intervene and lend emergency funds in order to curb the effects on the financial system.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
Here are five things a successful investor must consider before investing in a newly public company: 1...Read More →
You've maxed out on contributions to your traditional IRA, so there's nothing left for you to do, right? Wrong. You can make previous...Read More →