Summary – Learn what is Mortgage insurance, why it is important, and what factors to consider before purchasing it
Mortgage insurance is a saviour when the borrower is unable to pay the EMI. It covers the borrower’s mortgage repayment obligations.
Home Loans normally come in the form of term life insurance which usually covers the borrower until the end of the loan term.
Mortgage insurance is a system in which the insurance company settles the unpaid balance of the mortgage with the lender or bank in the event of unforeseen circumstances. Some comprehensive mortgage policies protect applicants, their homes, and their contents. Furthermore, mortgage insurance premiums are tax deductible.
Why Is Mortgage Insurance Important?
Lenders are protected against bad debts in case of death, disability, loss of job, or bankruptcy of the borrower. Mortgage insurance covers this contingency.
You can choose a regular plan or one that offers additional features and an extended warranty. It protects the borrower’s family from heavy debt if the loan isn’t paid in full.
You can use a Housing Loan Eligibility Calculator to understand whether you can get mortgage insurance.
Reasons to Get Mortgage Insurance
You must get mortgage insurance to protect yourself from financial loss. Here are some reasons why you must purchase home loan insurance:
- The insurance company will pay off your pending loan in case of unfortunate circumstances.
- Joint mortgage borrowers can be insured under a single mortgage contract.
- Medical problems, serious illnesses, or disabilities can be added to your mortgage insurance for an additional fee.
- Mortgage insurance provides Section 80C tax benefits.
- Most mortgage insurance is a single premium policy where he only pays the premium once. There is also a facility to add the premium as part of the Home Loan EMI, which means you have the leverage to pay your premium amount in EMIs, but you may lose your tax benefits in this case. You must use the Housing Loan Eligibility Calculator to check whether you can get one and the premium you may have to pay.
Important Factors To Consider Before You Buy Mortgage Insurance
Here are some key elements to consider before investing in mortgage insurance.
- Understand The Type You Want To Buy
You can invest in term insurance or homeowners or separate mortgage insurance.
Term insurance covers all your liabilities, whereas mortgage insurance will only take care of your outstanding mortgage if you are unable to pay it back.
- Sum Assured
Most mortgage insurance offers reduced coverage and is directly linked to the mortgage balance. Therefore, the insured amount decreases as you keep repaying the loan amount.
A term plan allows the policyholder to receive the insured amount and pay the lender or bank to process the loan.
In the case of mortgage insurance, the insurance company makes outstanding mortgage payments directly to the lender to settle the loan.
- Where To Purchase It From
Mortgage insurance can be bought from general insurers or life insurance companies.
The term is longer when the policy is bought from a life insurance company, whereas from general insurance companies, you may have to get the plan renewed time and again.
- Be Sure To Ask About Riders And Extra Covers
Getting a plan that covers situations such as unemployment, disability, and death can be beneficial. Also, check whether the policy covers only natural or accidental deaths.
You must also learn about the processing fee for the Home Loan amount and insurance coverage before you take one.
- Make Sure It Meets All Your Needs
Compare different products on the market and choose the best one. Sort out your expenses before bundling your EMI and bonus payments.
Conclusion
Investing in mortgage insurance is a win-win situation for both borrowers and lenders. Mortgage insurance protects your loan amount from unforeseen financial constraints because of which you may not be able to pay the loan EMIs.
Although it is not mandatory to buy mortgage insurance, it is prudent to invest in one to protect you from losing your most valuable assets in the event of unfortunate events.