Of recent, due the numerous foreclosures and bankruptcies during the economic recession, repayment of mortgage loans has been a rather widely discussed issue. The mortgage protection insurance is a financial provision that deals with the issue. There are some frequently asked questions about insurance rates for mortgage protection. However, before we proceed, let us first have a look at the concept of such a mortgage protection insurance.
What is a Mortgage Protection Insurance?
It is a type of coverage policy, that is used to protect the repayment of mortgage loans. This policy is a great example of insurance policies that cover payment of a particular loan. Mortgage is a loan than is specifically taken for purchase of real estate, property and homes.
The loan is quite a big one, and has lengthy repayment schedule with installments that range for more than just a few years. In cases where the installments are not paid on time, the credit report gets damaged in a negative manner. The default of such loan results into a foreclosure, which is a very unpleasant situation.
Now mortgage protection is a policy that ensures that you make your mortgage payments on time. Such policies have come to prominence in the recent few years due to the recessionary cycles. The working is simple. The borrower of the mortgage purchases such a policy to safeguard mortgage repayment.
The borrower pays the insurance company a specified mortgage loan insurance premium per month or year, and in cases where the person is not able to pay the installment, the company pays it on his behalf. This amount is then deducted from the diminishing returns that the person is supposed to receive, upon the maturity of the policy. A close variant of such a policy is the mortgage protection life insurance. In such a policy, the installments are paid in case of the death of the borrower.
Mortgage Protection Insurance Rates
The mortgage protection is not exactly a cheap gamble, and the premium usually varies from 1 to 5% of the total mortgage amount plus the interest amount. The premium rates on the other hand are decided upon the medical condition and age of the borrower of the mortgage. Also the income of the borrower of the mortgage is taken into consideration while calculating the insurance rate.
The insurance company first considers the total mortgage cost, that is the total cost, plus the interest cost. Then this cost is split into the number of years for which the mortgage is due. A debt to income ratio is calculated, and a convenient annual premium is fixed. The annual premium is basically fixed according to the income of the borrower of the mortgage.
This premium fits perfectly into the borrower's income. The insurance policy has a maturity period, after which the borrower receives a structured set of payments, which are usually diminishing in nature. In case of death or non installments, that amount is evenly deducted from the structured payment.
Though at first the payment of premium seems quite a burden, but in return the installments are safeguarded, and so is the home or real estate. In addition, the person availing this insurance also enjoys the returns. Thus, irrespective of the rate of insurance, the investment is definitely worth it.