The Importance of Mortgage Loan Insurance

Mortgage Loan Insurance is intended to protect the lender from default on the part of the borrower, plain and simple. However, the Canada Mortgage and Housing Corporation (CMHC) designed mortgage loan insurance for more than just protecting the banks. The CMHC wanted homeowners to have a greater ability to enter the housing market, at an earlier time and with better success. After all, more privately owned housing means more jobs, more consumer activity, more money being spent and so on. If there are more jobs and more spending, then the economy benefits. In short, the risk to lenders has been removed, leaving them in a better position to offer lower interest rates and smaller payments.

When the CMHC laid out their plan for mortgage loan insurance (MLI), it included the stipulation that if the buyer had less than 20% of the purchase price as a down payment, the insurance was required. Before the advent of MLI, The Canadian Bank Act prohibited federally regulated lending institutions from lending to those with less than that 20%. Now the banks can finance up to 95% of the purchase price, provided MLI is purchased. The change meant so many more people who had previously given up on owning a home, now had hope.

For those who already own a home, MLI provides options for those wanting to renovate, refinance or move to another home. CMHC MLI’s are portable from an existing home to a newly purchased one, and sometimes without having to pay the initial premium on the new home. Additionally, the self-employed who are seeking to finance the purchase of a new home are now able to do so without providing traditional forms of proof of income. Even those who are new to Canada are eligible. Existing homeowners who wish to incorporate energy efficient elements into their home (NRCan energy assessment rating must rise by at least five points) are entitled to an extended amortization period – without a surcharge and with a ten percent insurance premium rebate. There are even further benefits for borrowers purchasing a second home or income property.

Now that we know the importance of MLI, how does it translate into numbers? Well, for starters it depends on a few calculations. Your lender will do them for you, but if you want an idea ahead of time then begin with calculating the Gross Debt Service (GDS). The GDS estimates the most expenses you can afford each month, more specifically the expenses related to running the home. To qualify for an MLI, the total GDS should not be more than 32% of your gross household income. Next is calculating your Total Debt Service (TDS), which estimates the most debt load your income will support. The TDS should not be more than 40% of your gross monthly household income. Then use an online mortgage calculator to enter the information along with your total monthly income along with other factors, and you will be provided with the maximum allowable mortgage you will qualify for.

The MLI premium rate will then be calculated as a percentage of the total loan with the size of the down payment taken into account. For example, if you require the lender to finance 80% of the cost of the home then your premium will be 1% of the total loan. If your purchase requires 95% financing on the part of the lender, the premium will be 2.75% of the total loan amount. Thus, the lower the amount financed, the lower the insurance premium.

In June of 2011 the CMHC reported their findings of recent survey which asked 3512 mortgage buyers about their goals in paying off their debt. A whopping 39% said they had purposefully set their payments higher than the suggested amount so they could pay off the debt faster. A further 20% reported making a lump sum payment since the date their mortgage took effect. The summary statement offered by the CMHC was that Canadian homebuyers have “a high level of financial literacy”. The statistics offered by the corporation is certainly a good sign, and any proud Canadian homeowner should give them self a pat on the back.

Furthermore, the harder homeowners work to pay their mortgage down, the more equity they build in their home. Clearly the opportunity to purchase sooner than what was previously possible (through the installation of the MLI), homeowners have taken the chance to go further than even the lender anticipated. As of 2009, the CMHC reported that Canadian homeowners’ equity position sits at an average of 74% while their American counterparts were at 43%. The importance of the MLI is certainly clear now, isn’t it?

Understanding What Loan Insurance Plans Are

Loan insurance is also known as PPI. If you are applying for this particular kind of insurance, there are a number of considerations to underscore. These considerations can help in minimizing the risks and improving conditions in the near future especially for the sake of the family the self.

The cost:
This is a big consideration when choosing Loan Insurance Plans. It depends on where you live and the kind of policy that you have chosen. You can opt for either age related or based on how much you can pay for on a monthly basis. Consider your credit rating. If you have a really bad rating, you might end up paying even more. Please be guided that this type of protection is expensive on its own. You might want to take a look at the offerings from various discount insurance companies. Most banks and big insurance companies sell their products at higher premiums. Find a company that allows you to adjust your needs in time, like adding features to the protection when you needed it. This can also help you in saving money while allocating money on something you can afford.

Is there such a thing as too much?
It all depends on how much you are willing to pay for. Some companies can offer up very high rates that could even go 5 to 6 digits. It is important then that you choose the right company that can offer you the best Payment Protection Insurance that you can afford. Remember though that the more extensive the coverage is, the higher the premium that you will be paying. Be guided about that detail so that you can make proper financial strategies at the end of the day.

How beneficial can it be?
The Loan Insurance Plans can be used to protect your credit score. When you are in a state of redundancy, illness or handicap, your credit rating is kept frozen. This means that you are able to maintain the score on a safe level while you are also paying off the debts, or finding new work that can pay off the bills. One consideration though is on the interest rate. The rate is not actually lowered. In fact, it just moved to the policy.

There are a number of things for you to consider when applying for this insurance. Some companies will tell you that you have to be approved for loans. So that you can qualify for the PPI. It is also necessary that you read the terms, conditions and exclusions. You must be patient enough to review all the content since you might not be aware but there are some aspects that might not fit the mold.

Lenders Often Require Mortgage Loan Insurance

Today there is typically an insurance policy available to cover purchases or transactions of most any type, and that includes one of the largest purchase transactions people make in their lifetime, which is buying a home. A mortgage loan insurance policy is designed to protect the lender in case of default on the part of the purchaser.

Twenty percent down is a safe minimum

In cases where the home buyer makes less than a twenty percent down payment on their home, an insurance policy guarantees the lenders money is safe and they will regain at least part of the money they loaned if the buyer fails to pay or defaults on the loan. This same mortgage loan insurance is beneficial to the borrower as it allows them to not be required to pay as much. Typically a down payment is required to be at least twenty percent of the total of the loan, but some instances can be as low as five percent. The lower limit will be dependent upon the borrower having excellent credit and the borrower being willing to “cover” the difference through an insurance policy.

Pay more rather than less

There is no doubt that the more a borrower can afford to put down on a home, the less they will need to repay in the form of mortgage payments. Lenders, who offer fifteen year mortgages (rather than thirty years), will benefit from having the amount they have loaned returned far more quickly and borrowers will pay far less in interest over that period of time, plus have that home free and clear in half the time. In cases where at least twenty percent is paid down and the mortgage is secured by a fifteen year loan, the mortgage loan insurance may be substantially lower.

Mortgage loan insurance can be paid two ways

Typically mortgage loan insurance is included as part of the monthly mortgage payment or it may be considered a separate loan which requires a separate payment which can be made monthly, annually, or in a lump sum. Borrowers usually prefer to incorporate it into their monthly payment although it means they must pay on that insurance policy for the lifetime of the loan. The average cost of mortgage insurance ranges from one and a half percent to around six percent of the principal of that loan, and this is considered a tax deduction for the borrower.

Mortgage loan insurance protects lenders against defaulting borrowers

When the lender has mortgage loan insurance they will not need to worry about losing their money if the borrower defaults on the loan. This insurance can be public or private and that depends upon the insurer. Also known as a mortgage indemnity guarantee, this form of insurance pays the amount agreed upon in the policy, generally around twenty five percent. The buyer has another option if they can only offer less than twenty percent down and that is to borrow additional funds, sometimes called a second mortgage or a piggy back loan.

The use of borrow paid private mortgage insurance or BPMI allows borrows to obtain a home while paying less than twenty percent down. It is all to enable home ownership and is for the benefit of all parties concerned.

Personal Loan Insurance – Should You Consider?

I have had an experienced cash crisis recently. I was thinking to borrow some money then from a friend or relative of mine, but I dropped that idea. I seldom request anybody to lend me money or any thing like this. Cash withdrawal from credit card could have been a better option instead. However, I instantly dropped that idea too as borrowing charges from credit cards were high enough because of high rate of interest (normally up to 3% a month) after expiration of a fixed period, say 50 days. Finally I’ve decided to go for a personal loan because it was fast in approval and hassle free.

A personal loan is a great option to have your funds for consolidating your debt and you can take personal loan to further your higher education, repairing your car, or even taking up a vacation.

You may know that personal loans, just like credit cards, can be secured or unsecured. Secured loans are often much riskier because you may have to ensure the repayment of the loan by providing the lender with collateral security. If anyhow you fail to meet that repayment, the lender will legally repossess your property, vehicle, or what ever asset you used to secure the loan.

But don’t be worried thinking about the failure. Personal loan is still a better option and offer plenty of opportunity for individuals to improve their overall financial condition. But you should develop a habit of good money management skills. However, certain inevitable incidents in life can changed everything and you may not have control over those things such as unexpected death of the lender, loss of employment, or becoming a disable person.

Skipping the first issue of unexpected death of creditor, rest of the things can affect our ability to repay the personal loan. If that loan is of a secured type, you may lose your asset as well, being a collateral security.

Now to protect yourself against all those probabilities, you should consider purchasing a personal loan insurance. Being an insurance guy,I would suggest you to actively consider the insurance option.

I personally feel that personal loan insurance is the best protection you ever have for repayment of the loan and ensures you to have a peace of mind during the repayment term if opting for a secured one. The cost of such insurance, however varies and is generally determined by the outstanding balance of your loan amount. The type of personal loan insurance coverage will also affect the premium too.

There are three types of personal loan insurance coverage to choose. For Americans, the specific dollar amount of coverage will depend on the laws in your State and the dollar amount of your loan. But I always suggest you to discuss the matter regarding your personal loan insurance with your lender.

Personal loan death insurance will pay up to a certain dollar amount in the event of death of one of the individuals on the loan. In that case, the nominated person on the policy will be paid in full up to the maximum dollar amount or assured amount. Personal loans generally have a maximum loan amount of $15,000 in the USA.However it is not uncommon for individuals to take out more than that.

Disability Plus personal loan coverage is such type of coverage that most often be purchased for personal loan protection. It will pay you the monthly personal loan repayments(EMI) up to a certain dollar amount. Additionally you will receive a cash payment for a percentage of your loan amount each month to help you with the cost of living expenses.

Involuntary Unemployment Coverage Insurance for personal loans is very popular. This type of insurance will pay you up to a certain dollar amount per month in case your are being laid off.

You may be aware of the fact that personal loan is a great financial tool when you use it properly. Personal loan insurance is a very reliable option to help you ensure to continue your repayments regardless of medical issues, unemployment, or death. And this type of insurance is especially important for individuals with a secured personal loan. Not having a personal loan insurance will create a kind of situation where, not only your credit score will be negatively impacted, you would be end up losing your valuable collateral assets that are tied to your personal loan.

You’ll be happy to know that personal loan insurance is very affordable and can often be purchased through the lender. It is important that you educate yourself properly and inquire about it while you’re looking for such personal loans. Most lenders are readily available and more than happy to discuss about this option with you as it further assures them that they will receive the refund.

Are You Paying Too Much For Your Loan Insurance?

When you take out a loan, it is likely that you will be offered loan insurance to protect your payments should you be unable to keep up with them due to illness or unemployment. However, many of the loan insurance policies on offer cover you for very little and are extremely expensive. If you want to find out what you should be paying for loan insurance and what to avoid then this article can help you to decide.

What is loan insurance?

Loan insurance is often known as payment protection insurance or PPI. This type of insurance covers you if you cannot make your loan payments because of an accident, illness or involuntary unemployment.

How much does it cost?

The price of loan insurance can vary greatly, but is usually added as an extra to your payments each month. Although the payment figure might look small, if you add it to the total loan amount and then add interest the number can seem much more.

Hidden costs

Although a loan might seem cheap, when payment protection is added the loan price can increase significantly. For instance, the amount you pay back on a £5000 loan over 5 years can increase by over £1,500 when loan insurance is added. Often, loan insurance is added without you knowing about it, which means you are paying for something you didn’t even ask for.

The benefits

Despite its high cost, there are some benefits to loan insurance. It can give you the peace of mind that if something should happen to you then your payments are covered for up to a year. This means that you won’t be in financial difficulty or risk default if you are ill or injured. If this sort of security is important to you then loan insurance is probably a good idea.

Lack of cover

Although it can give you peace of mind that you will be covered, loan insurance has extremely limited coverage. For example, if you are self employed it is unlikely that the unemployment clauses will cover you unless your business has ceased trading. Before getting any loan insurance you should check that you are covered for the things that are important to you, otherwise the policy is not worthwhile.

Alternatives

There are some alternatives to loan insurance that are usually cheaper. Firstly, you can usually get the same sort of loan insurance cover independently from your loan provider. The price of this insurance is usually much lower than the price offered by your insurance company. Also, some of the clauses of the loan insurance may already be covered under other insurance policies that you have. Loan insurance can be worthwhile, but unless you are covered and can get the insurance for a good price then it is usually not worth having. However, if you shop around and know exactly what you need to be covered for, you can find insurance that will cover you in the event that you cannot keep up with your loan repayments.