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Home Owner Insurance

With the recent housing crisis, mortgage insurance has seen a change.  For those that don't know what mortgage insurance is, let's go over the main function of home owner insurance (also called mortgage insurance) and how it affects those that have a home mortgage. 

In order to make it easier to understand, let's first think about the insurance payments that all of us make in our lives.  One of the most common insurances that we pay is that of car insurance.  This ensures that our vehicles will be fixed up and repaired in the event there is an accident.  Mortgage insurance is designed to cover the lender if the borrower decides to default on the loan, or stops paying.  Since mortgage loans are typically for hundreds of thousands of dollars, a default on a loan can be very costly to a lender.  In order to protect themselves against default and loss, mortgage lenders charge mortgage insurance to private companies in order to protect the money that they are lending to borrowers. 

Now that we understand what mortgage insurance is, the question now is how does it affect a borrower? Since the banks don't want to have to pay the insurance fees, they pass on these payments to the borrower.  This means that the borrower will pay a certain amount each month that goes just to mortgage insurance as part of their loan repayment.   The tricky thing here is that many different lenders charge different mortgage insurance rates, so it becomes imperative that you do your research and find the lenders that have a lower insurance rate.  As a borrower, there are some things that can lower your mortgage insurance.  One such technique is to have a high credit rating and to have money to put down on a bad credit mortgage, or mortgage refinance.  In the instance of mortgage refinancing, most mortgage insurance can be eliminated if the house apprises for more than what the loan amount currently is. With the economy having tanked in the past few years, the appraisal values for homes have dropped significantly.  This means that having assets, or money to put down is the best idea when it comes to getting a home loan without high mortgage insurance payments. 

As you can see, mortgage insurance is necessary to protect the lender, but as a borrower, you can position yourself to pay lower mortgage insurance rates, or eliminate mortgage insurance altogether.  Make sure to do your research on the different lenders that you are considering as you will want to pick a lender with a low rate of mortgage insurance.