Mortgage Protection
Mortgage protection insurance (MPI) gives homeowners protection against losing their house if a spouse or partner were to die or get killed accidentally. Mortgage protection can prevent your home from going into bankruptcy, foreclosure, or being sold at auction. MPI provides another layer of safety for your family.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is an insurance policy that pays all or part of your mortgage balance if the policyholder dies unexpectedly before the mortgage is fully paid. Some MPI policies cover mortgage payments if you become disabled.
MORTGAGE PROTECTION INSURANCE RIDERS
Living Benefits – Lets you access the money if you’re diagnosed with terminal illness and have a life expectancy of less than 12 months.
Return of Premium – Returns the money you paid if you pay the mortgage in full.
How Does Mortgage Protection Insurance Work?
Mortgage protection insurance pays your remaining balance when you die. It pays directly to the lender because the lender is the beneficiary in your insurance policy. The lender will wipe out the balance on the mortgage and your heirs don’t have to worry about losing the home.
MPI covers the principal and interest of the mortgage, it does not include HOA fee, property taxes, and homeowners’ insurance. You can buy riders to pay these expenses.
The cost of MPI varies by the amount of mortgage and your age. Your premium stays the same during the term of the policy, but the insurance value decreases as the mortgage is paid.
Getting mortgage protection is easy. Your acceptance is guaranteed, and you can qualify without a medical exam or health questions. MPI is sold by insurance companies affiliated with mortgage lenders. You can purchase MPI within 24 months of closing a loan up to five years. Your policy term lasts for the same years as your mortgage.
MPI is not a requirement when taking out a mortgage, however you are required to get Private Mortgage Insurance (PMI) if your down payment on the home is less than 20% of the property value.
What Does Mortgage Protection Insurance Cover?
Mortgage protection insurance covers the balance of the mortgage if you were to die. Its main purpose is to provide a payout to the mortgage lender and wipe out the loan.
Some mortgage protection insurance covers disability and illness. If you become critically ill or injured, MPI will cover your monthly mortgage payments.
Some mortgage protection insurance will cover your monthly payment if you become unemployed.
Mortgage protection insurance does not cover property taxes, HOA fees and homeowners’ insurance. It also does not cover funeral costs, living expenses, and other non-mortgage debts.
Pros & Cons of Mortgage Protection Insurance
Here are the pros and cons of mortgage protection insurance:
PROS
- No medical exam or health questions
- Pays the mortgage when you pass away
- Riders can be added for additional benefits
- Guaranteed acceptance regardless of health condition
- Great option for people who cannot get traditional life insurance
CONS
- Your family will not receive the benefit payout
- Higher premiums because of no underwriting
- Decreasing benefit payout as loan is getting paid
- You may end up paying more for less insurance coverage
- Does not provide the same flexibility as term life insurance
What Are The Differences Between MPI, PMI And MIP?
Mortgage protection insurance is often confused with private mortgage insurance and mortgage insurance premium. Let’s explore the difference.
Mortgage Protection Insurance – Pays the mortgage balance when you pass away.
Private Mortgage Insurance – Is a prerequisite if you get a loan and your down payment is less than 20% of the balance. You can cancel PMI when your equity reaches 20%.
Mortgage Insurance Premium – This is a requirement if you have FHA (Federal Housing Loan) no matter your down payment amount.
MPI Vs. Life Insurance
Both mortgage protection insurance and life insurance work the same way in most case. Here are the similarities and differences between the two:
Similarities:
- You pay the insurer a monthly premium
- Premiums ensures protection
- If you die during the term, the policy will pay benefits.
Differences:
- MPI acceptance is guaranteed. Life insurance with medical underwriting.
- MPI the beneficiary, is the lender. Life insurance, the beneficiary, is your family.
- MPI decreasing benefit amount. Life insurance the benefit does not decrease.
- MPI benefit pays the mortgage. Life insurance benefit can be used for anything.
How Long Do You Have To Have Mortgage Protection Insurance?
Your need for mortgage protection insurance depends on how long your mortgage is. You need to pay your monthly premium until your mortgage is paid up.
Like most other types of insurance, your insurance company can cancel your benefits when you stop making the payments.
You can cancel your insurance anytime. However, you won’t get any of your premiums back.
Where To Buy Mortgage Protection Insurance?
There are different ways to buy mortgage protection insurance:
- Mortgage Lender – You can get mortgage protection insurance from your lender. Ask a real estate representative for a referral if your lender does not offer this product.
- Private Insurance Company – There are several private insurance companies offering mortgage protection insurance depending on your state.
- Life Insurance Company – Some life insurance companies also offer mortgage protection insurance. Nationwide insurance companies may also offer life insurance and mortgage protection bundles.
Finding a policy after you close your loan should be your priority. Most insurance companies have a two-year window, although some have up to five years. If you miss it, you might not get a MPI policy.
How Much Does Mortgage Protection Insurance Cost?
The cost of mortgage protection insurance depends on different factors, such as the price of your home, your mortgage balance, how much time is left in your loan term. Your age, job, and overall risk will also be considered. Rates will vary by company.
A 30-year-old male who has a 30-year mortgage with a $500,000 balance can expect to pay $60 per month.
Is Mortgage Protection Insurance Worth It?
Buying mortgage protection insurance depends on your specific needs. If you can’t qualify for traditional life insurance because of age or health issues, buying a mortgage protection insurance makes sense.
If you have a high-risk job and you’re having a hard time getting approved for a policy. MPI could provide your loved ones with peace of mind.
Make a comparison shopping and read all the fine prints before signing up for a policy.
