Mortgage Title Insurance

Mortgage title insurance protects against loss in the event a sale is later invalidated because of a problem with the title. Mortgage title insurance protects a beneficiary against losses if it is determined at the time of the sale that someone other than the seller owns the property.

Before mortgage closing, a representative, such as a lawyer or a title company employee, performs a title search. The process is designed to uncover any liens placed on the property that would prevent the owner from selling. A title search also verifies that the real estate being sold belongs to the seller. Despite a thorough search, it isn’t hard to miss important pieces of evidence when information is not centralized.

Mortgage Protection Life Insurance

Borrowers are often offered mortgage protection life insurance when they fill out paperwork to start a mortgage. A borrower can decline this insurance when it is offered, but you may be required to sign a series of forms and waivers, verifying your decision. This extra paperwork intends to prove you understand the risks associated with having a mortgage.

Payouts for mortgage life insurance can be either declining-term (the payout drops as the mortgage balance drops) or level, although the latter costs more. The recipient of the payments can be either the lender or the heirs of the borrower, depending on the terms of the policy.

How Long Do I Need To Pay Mortgage Insurance?

If you have a conventional loan, you’ll generally need to pay mortgage insurance until you have at least 20% equity in the home. If you have an FHA loan, you’ll have to pay mortgage insurance premiums (MIP) until you pay off the mortgage or refinance.

What Does Mortgage Insurance Cover?

Mortgage insurance isn’t for your benefit—it’s for your lender’s. It protects your mortgage company from loss if you wind up unable to make your payments. It won’t protect you from losing your house if you default on the loan.

How Can I Avoid Paying Mortgage Insurance?

If you don’t want to pay private mortgage insurance when you borrow funds for a new home, you’ll need to put down at least 20%. Depending on the lender, you might also be able to avoid PMI by choosing a mortgage with a higher interest rate that compensates the lender for the additional risk.

However, some loans, such as FHA loans, will require mortgage insurance premiums regardless of the equity you hold in the home.

The Bottom Line

Mortgage insurance protects the lender in the event that you cannot meet your mortgage obligations. Lenders require you to pay for private mortgage insurance if you put down less than 20% on a conventional loan, but you can request to drop the insurance once you have sufficient equity. For government-backed FHA loans, however, you’re required to pay mortgage insurance premiums for the life of the loan