Cost Cutting: Mortgage Protection Insurance Services

Mortgage protection insurance is a form of guaranty you will not default on your loan. Most lenders will require you carry some insurance on your mortgage in its infancy. Typically, the requirement will be removed at some point once you have reduced the principal debt on the loan. In order to meet your lender's requirements while still cutting costs, you have a few options. You can seek alternative insurance through a government organization, or you can reduce the insurance required on your loan through a larger down payment.

Private Mortgage Insurance

Private mortgage insurance, offered through a traditional insurance company, will be required on the vast majority of mortgages. The premium will generally cost a few hundred dollars a month on a standard $200,000 to $300,000 loan with an average 10 percent down payment. This premium will go up with a higher principal loan debt or a lower down payment since both would increase the limit of the mortgage. If you were to ever move into delinquency on your loan while the insurance was active, the insurance company would make payments for a limited time depending on your policy. The policy is not meant to cover a default.

Mortgage Insurance Premium

You have the option of seeking assistance through a federal organization to reduce your mortgage protection insurance rates. For example, both the Federal Housing Administration (FHA) and the Department of Veteran's Affairs (VA) offer loan guaranty programs. Once you qualify for the guaranty, you can use a public option to cover your insurance requirement. This comes in the form of a Mortgage Insurance Premium (MIP) on your monthly payments. With a federal organization, your MIP will generally be lower than the cost of Private Mortgage Insurance (PMI). If you do default on the loan, the federal organization promises to step in and pay the debt in full, which can also make the interest on your private loan cheaper.

Large Down Payment Assistance

Whether you have PMI or a federal guaranty with an MIP, you will always benefit through a higher down payment to reduce the cost of your mortgage protection insurance rate. With the FHA, for example, you will not have to pay an MIP if the loan to value on your loan is lower than 78 percent. This means that if you pay 22 percent down, you will not have an MIP at all. With a private loan, a 20 percent down payment will typically significantly reduce or eliminate PMI.

Unemployment Insurance

If you carry unemployment or income protection insurance, this limit may be used to partially offset your required mortgage insurance. Unemployment insurance will help pay your debts, including your mortgage, if you lose your job due to circumstances outside of your control. Maintaining this premium can be costly, particularly in an economy with high unemployment rates. If possible, you can reduce the cost by saving at least three months' worth of expenses independently. This way, your unemployment insurance can be purchased so it would pay out only if you were unemployed for more than three months. This would reduce your cost on the premium paid.

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