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December 25th, 2013
“How mortgage insurance works” is number six on our list of the top-10 articles of 2013.
What is mortgage insurance? Who is mortgage insurance for? What does mortgage insurance do for borrowers? Who pays for mortgage insurance? Is there anything else important to know?
Find out the answers to these questions and more in “How mortgage insurance works.”
What is mortgage insurance?
It’s a financial guaranty that insures lenders against loss in the event a borrower defaults on a mortgage. If the borrower defaults and the lender takes title to the property, the mortgage insurer (MGIC, for example) reduces or eliminates the loss to the lender. In effect, the mortgage insurer shares the risk of lending the money to the borrower. (Mortgage insurance should not be confused with mortgage life insurance, which provides coverage in the event of a borrower’s death, or homeowner’s insurance, which protects the homeowner from loss due to damage from fire, flood or other disaster.)
Who is mortgage insurance for?
All home buyers can benefit. It allows them to become homeowners sooner, and it dramatically increases their buying power — excellent benefits from a buyer’s perspective. First-time buyers can use a low down payment to help them afford their first home, or to purchase a more expensive home sooner. Repeat home buyers can put less money down and gain significant tax advantages because they will have more deductible interest to claim. They can also use the cash they would have used for a large down payment for investments, moving costs or other expenses.
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6. How mortgage insurance works
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