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What is Mortgage With Insurance? 

Mortgage insurance has become extremely popular in the Indian insurance market. Getting a mortgage with insurance is something that can help homebuyers to avail a mortgage loan at an affordable interest rate and a lower down payment. Let’s know more about this.

What is Mortgage Insurance?

Mortgage insurance is an insurance policy that protects a lender if the borrower defaults on payments or is not able to meet the contractual obligations of the mortgage contract. In simple words, a mortgage with insurance will ensure that the loan is repaid in case the loanee passes away or is unable to pay the debt. Usually, the tenure of mortgage insurance is 12 months and it comes with various payment options like, borrower-paid, lender-paid and split payment.

The foremost reason for getting mortgage insurance for homebuyers is the safety factor. Mortgage insurance decreases the chances of loss for the lender. This means that having mortgage insurance can help homebuyers get a loan for a higher amount than you would normally qualify for.

The types of mortgage insurance are:

1. Private mortgage insurance (PMI)

This is a mortgage life insurance that protects the borrower from the lender in case of a default. Private mortgage insurance would generally cover a huge portion of the borrowed capital. This type of insurance is offered by private insurance companies. There are various types of Private Mortgage insurance such as:

  1. Borrower-paid private mortgage insurance
  2. Lender-paid private mortgage insurance

2. Mortgage insurance premium (MIP)

This is a mortgage life insurance product that is usually provided by the government. A mortgage insurance premium protects the lender in case the borrower is unable to pay the amount because of an unfortunate event. Mortgage insurance premium has premium rates and cancellation policies which are different from PMI.

What are the Types of Rates Offered in the Indian Mortgage Market?

In the Indian insurance market, people can choose between the following:

Flexible Mortgage Rate: This type of mortgage interest rate is called floating or adjusting rates. This is because the fluctuations in the market affect the interest rate.

Fixed Mortgage Rate: A fixed mortgage rate is when the rate of interest remains fixed throughout the loan term. The conditions of the market will not affect this mortgage rate. Basically, this means that the rate of interest will not change during the process of borrowing funds. This interest rate can be between 12.5% to 25%.

The value of the borrowed amount determines the premium and the coverage of the mortgage insurance. The insurance policyholder can either pay the amount of the premium annually as a lump sum or split the amount and pay on monthly basis. Policies offering the provisions for lumpsum payment are termed single-premium mortgage insurance. Single-premium mortgage insurance has added benefits. It could help qualify the borrower for a bigger loan amount as he/she won’t have to pay mortgage premiums monthly.

How is Mortgage Insurance Different from Mortgage Life Insurance?

Mortgage insurance, also known as mortgage loan insurance, should not be confused with mortgage life insurance. Mortgage insurance usually protects the lender. But mortgage life insurance is made to protect the heir if the borrower dies while still owing mortgage payments. If a borrower is concerned that they will leave a large amount of mortgage to his family after death, he/she can buy mortgage life insurance. The coverage can be paid to the lenders or to the heirs.

What are the Benefits of Mortgage Insurance?

The biggest benefit of mortgage insurance is that it provides safety and surety of getting the money back. It protects the lenders and investors from possible losses that could occur when the borrowers are unable to repay the mortgage debts.

From the borrower’s end, this insurance helps them to protect their most valuable asset i.e. their house in case they are not able to pay back the debt that is taken against it.

Mortgage insurance has made the goal of owning a home achievable. With mortgage insurance, people can purchase a house with smaller down payments, up to 20% less.

Before opting for a mortgage with insurance, you should check with your lender to find out what types of mortgage insurance are provided by them. You can then check their terms and policies and pick the one that is affordable and suitable for you.

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