If you're paying a mortgage or considering taking out a mortgage loan to purchase a home, odds are you've already considered or been offered mortgage insurance. Just like car insurance, life insurance or other forms of insurance protection, mortgage insurance covers you in the event that you become disabled, lose your job or die. The insurance will cover the cost of your mortgage for a set period of time in the event of disability or job loss or will pay the entire bill off if you die allowing your home to be willed, free and clear, to a loved one or family member.
Do you need mortgage insurance? The true importance of mortgage insurance depends on your individual situation including your own health, financial status and what you expect to happen with your home if you die. If you're not sure whether you need mortgage insurance or not, consider these scenarios:
Nobody really plans to lose their job, right? Unfortunately, job loss is just something that happens and though you don't plan on it, if you don't have adequate savings to continue paying for your mortgage while you look for a new job then losing your job could mean losing your home; unless you have mortgage insurance to help you out. Some people think, "if I lose my job, I'll just sell my house to pay off the existing mortgage." Unfortunately, property is not liquid and though you may be able to sell your home, even the most desirable property will take time to sell as the purchaser will need to secure funding on their end and home sales simply are not "quick."
Another situation that most people don't really plan for is disability. While life insurance coverage will sometimes pay your mortgage in the event that you become permanent disabled, the premiums for such coverage often come at a much higher price than standard mortgage insurance. Besides that, proving disability could take many weeks, months or even years to accomplish which means that you'll be responsible for paying the mortgage on your home during this time unless you have mortgage insurance which will cover your payments during this time.
Who will pay for your home if you die? Will your spouse be able to pay for the mortgage without your help? Mortgage insurance will pay off your entire existing home loan if you pass away allowing your spouse, loved ones or family members to preserve the home without being responsible for the remaining balance owed to the lender. Again, life insurance can cover this in many cases but the premiums that are charged for such coverage to prevent your spouse or loved ones from becoming homeless in the event of your death can be very extensive. Mortgage insurance is typically a more favorable option with a more affordable premium.