When you set out to get a mortgage of your very own, you’re likely to be bombarded with a slew of legal jargon, confusing terms, and an onslaught of numerical figures. Among the sometimes-confusing information that will be presented to you is your option to purchase one of two different insurance policies:
- Mortgage protection insurance (MPI)
- Private mortgage insurance (PMI)
At the surface, these two terms seem like they should be interchangeable. But they couldn’t be any more different. In the article below, we’ll explain the differences between mortgage protection insurance and private mortgage insurance.
What is Mortgage Protection Insurance?
MPI is a type of life insurance policy that a homeowner can get, in addition to an existing life insurance policy or entirely on its own. A mortgage protection insurance policy will financially safeguard the home by paying off the remainder of the mortgage if the homeowner is unable to pay due to circumstances that prevent them from working. Such occurrences are sudden permanent or temporary disability, illness or injury that extend for many months, and the death of the policy holder.
The cost of mortgage protection insurance can sometimes be added to the monthly payments made toward the mortgage itself. MPI is never mandatory.
You may want to get mortgage protection insurance if you do not currently have a life insurance policy, but you want to make sure that your family and your new home is protected in the event of the unexpected. MPI can be easier to qualify for at a lower rate, because your health and age are considered less of a factor when compared to other life insurance policy types.
What is Private Mortgage Insurance?
PMI protects the lender, not the borrower, which is the critical difference between the two different policy types. PMI is typically required under a certain set of circumstances, particularly when the borrower has put less than a 20% down payment toward the property. PMI will protect the lender (be it a bank, credit union or other financial institution), should the borrower default on their mortgage loan.
Like MPI, PMI can be added to the monthly costs of the mortgage loan payments. In fact, it usually is.
Unlike MPI, private mortgage insurance is mandatory in the circumstances outlined in this section – when the borrower pays less than a 20% down payment.
If you remain unsure about the pros and cons of each policy type, you should confer with a professional in the real estate industry. Insurance agents, your banking institution, mortgage brokers and others can help demystify the subject so that you can make the best financial decisions for you and your family.