Two Approaches To Mortgage Insurance
by Thomas Hanes on Jun 22, 2017
When buyers first purchase a dwelling, they are normally presented with a mortgage insurance application at their bank or mortgage broker. There are two issues that they are not told when this insurance is taken out: first, that there are often charges which are connected with the redemption of the mortgage, and second, there are severe limits for mortgage insurance taken out through a bank or mortgage company.
Most of those who have mortgages often have a prescribed term usually anywhere from 2-5 or even 10 years, which usually has to be discharged with a penalty if paid off early. This payoff can be in the thousands of dollars. Mortgage insurance does not take this penalty into account, only the reducing balance on the principal of the mortgage. Furthermore, the proceeds from their policy must be used to redeem the mortgage and for no other purpose.
In addition, the survivor(s) may need funds for other things, such as the final expenses of the deceased mortgagee, repairs on the house, and many other expenses and bills that may be more pressing. Unfortunately, bank insurance cannot be used for these purposes.
There are two approaches that can be used to avoid these problems, both using independent life insurance:
First, if reducing principal mortgage insurance is used, an additional amount can be built into the initial amount insured. Any early discharge fees and other prospective expenses can be accommodated in this way, and will be reduced as the mortgage principal is reduced.
Similarly, the mortgage principal, discharge penalties and other expenses may be built into a regular level-benefit policy. Any reduced principal can be accommodated by reducing the death benefit of the policy at renewal times. These times can be accommodated by having a renewal term of the policy the same as the term of the mortgage.
In both cases, the proceeds from each policy can be used in a more flexible way than the insurance provided by the banks and many brokers.
Visit the mortgage insurance section of our website, and request a quote for our mortgage insurance, or request more information. Or you may call our office number, 647-268-3409. We will be pleased to answer any request or questions.