by Susannah Fleming

In today’s fragile economy makes mortgage insurance makes more sense than ever. Be mistaken not to be confused with private mortgage insurance, often abbreviated simply PMI, mortgage insurance developed to pay off your mortgage or make payments on your mortgage for a certain period of time when certain events impossible for you to your mortgage payments. As with any type of financial product, it is very important to assess your needs and carefully review the insurance available to you before making a decision to buy mortgage insurance. Here are the things you know about mortgage protection insurance before you.

The amount you pay for insurance mortgage depends on the level of performance. In other words, if the policy pays you 0000 pay a higher premium than someone who is a policy that has paid 0000th Similarly, the premiums on a disability policy on the level of performance.

Unfortunately, many people do not have this kind of money lying around. For this matter, private mortgage insurance (PMI) was created as a way for mortgage companies to recoup their money if a homeowner defaults on the loan. There are various loans available to assist …

Keywords:
100% mortgage loan

Article Body:
Ideally, traditional mortgage lenders want new homebuyers to have a 20% down payment when purchasing a new home. Thus, if purchasing a $200,000 home, you should be prepared to have $40,000 as a down payment.

Unfortunately, many people do not have this kind of money lying around. For this matter, private mortgage insurance (PMI) was created as a way for mortgage companies to recoup their money if a homeowner defaults on the loan. There are various loans available to assist people with down payments. In some instances, homeowners can obtain 100% financing, and avoid PMI

What is Private Mortgage Insurance?

Because Americans are earning less money, and home prices are steadily increasing, the majority of the population is unable to save the recommended down payment of 20%. In order to make owning a home possible, mortgage companies created a particular mortgage insurance, (PMI), for people with less than 20% to put down on a home. This insurance protects the lender if you default on the mortgage.

How to Avoid Paying Private Mortgage Insurance

On average, PMI may increase your mortgage payment by $100 ? sometimes less, sometimes more. However, there are ways to avoid paying this additional insurance. The obvious involves having at least 20% as a down payment. If this is not an option, homeowner may agree to a higher interest rate. Another tactic entails getting approved for 100% financing.

How Does 100% Mortgage Financing Work?

100% mortgage financing makes it possible to buy a home with no money down. Also referred to as a piggyback loan or 80/20 mortgage loan, 100% mortgage financing involves obtaining a first mortgage for 80% of the home cost, and a second mortgage, or home equity loan, for 20% of the home cost. Together, the first and second mortgage allows a home purchase with no money down, and no private mortgage insurance.

A specialist in UK mortgage protection insurance knows their product and so can ensure that you don’t get mis-sold your policy by providing cover that is suitable for your particular needs. Recently it has come to light that some policyholders have been mis-sold their policy, many having policies that they have no hope of claiming on.

However it is important to remember that the main culprits for mis-selling are the high street banks and lenders – the Financial Services Authority fined several well know names earlier in the year for their sloppy sales practices. Standalone providers can offer better advice when it comes to the product along with helping you to make huge savings on the premium you are quoted.

UK Mortgage protection insurance is taken by those who have a mortgage and want to make sure their monthly repayments for the mortgage are safeguarded should the worst come to the worst and they become unable to work due to illness, accident or redundancy. The majority of UK mortgage protection insurance policies will pay out for up to 12-24 months and provide you with a predetermined income every month to ensure that at the very least you can pay your mortgage.

With the amount of repossessions on the increase, UK mortgage payment protection insurance should be something you do consider as it can mean the difference between you keeping the roof over your head or becoming just another statistic. So before committing yourself to a policy ask yourself if you have got the cheapest UK mortgage protection insurance available?

UK mortgage protection insurance can help you to continue repaying your mortgage if you lose your income through becoming unemployed; or suffering from an accident or an illness which keeps you off work for any length of time. Cover will usually begin to payout after a set period of time which can be anywhere between the 31st day and the 90th day after the event and would then continue for between 12 and 24 months which should be ample time to get well or find alternative employment.

You do have to realise that there are exclusions in all policies that can stop you from making a claim. Exclusions that are typical to most mortgage payment protection insurance policies include if you are suffering from an ongoing illness at the time of taking out the cover, if you are self-employed, of retirement age or if you only work in a part time position. The exclusions should be mentioned at the time of taking out the policy but the high street lender can be lax here, however a standalone specialist provider tends to be more ethical – as payment protection insurance is their core business – and will always make this information available in plain English.

It is the lack of information that causes so many problems with the sector and the Financial Services highlighted this in 2005 when they began an investigation into the payment protection industry following a super complaint from the Citizens Advice to the Office of Fair Trading. Several high street names received fines for unsavoury sales practices.

However in March 2008 it is hoped that a big change for the better will occur when the Financial Services Authority introduces new comparison tables which will make buying the product easier for the consumer. The table should make the product more transparent by asking the consumer a series of questions which will then point out which payment protection product is the most suitable for their needs along with highlighting the fact that there are exclusions in the policy and how much the cover will cost in total. Up to this point these have all been serious failings when it comes to selling payment protection products which have left the consumer confused about what they have actually bought and if it is suitable for their needs.

For the time being if you want the safety net that UK mortgage protection insurance can give then buy the cover independently from a standalone specialist provider who will not only be able to offer the cheapest premiums for the cover but also give you the advice you need to ensure a policy is right for your needs.

Mortgage terms:

Mortgages are designed in such a way that they can be paid in installments for a certain period. The time frame which allows the person to pay back his mortgage is called the term. The term may be 10 or 15 or even 30 years. The length of the term determines the amount of money to be paid, which is actually spread in installments.

Mortgage interest rate:

The interest rate depends on the percentage to be paid on the mortgage loan amount. The interest rates vary according to the credit score of the person. If the credit score of the person is very high, the interest rate and the amount of monthly installments are lower. If the credit score is lower then the interest rates and the monthly installment amount are higher. Hence a good credit score will help getting lower interest rates to the debtor.

Types of mortgages:

Mortgages – Adjustable rate of interest

Under this type of mortgages, the interest rate changes from period to period according to the fluctuations of the market. The degree of change of mortgage interest rate is directly associated with the index to which it is tied. Since index will differ as they may be tied to a foreign bank rate of interest in certain cases, it is good to ask to which index the adjustable rate of interest is tied to. Usually they are fixed for a period of 1-5 years and then become adjustable.

Mortgages ? fixed rate:

The interest rate of the loan amount is fixed in the case of fixed rate mortgage till the end of the term regardless of the market fluctuations. The debtor will never have to pay more than the fixed interest rate at any cost. The only means by which a fixed rate mortgage can change is through Refinancing.

Refinancing:

It is a process of changing the existing mortgage terms of agreement. The debtor can go for refinancing when the interest rates are lower so that he can save money qualifying for the lower rate of interest. The length of the term can also be adjusted to be either long or short using refinance option. Care needs to be taken when going for refinancing of mortgages as it entails for new closing costs. Fees and closing costs are involved in this method.

Appraisal:

The crucial part of mortgage is the appraisal. Before going for a loan from a bank, the value of the house must be assessed properly. An appraiser can determine how much the house is worth actually by inspecting the features of the house and by comparing it with the neighborhood houses. If any addition or embellishment is made to the house, it can raise the value of the house, but may require to appraise the new value of the document.

What happens if interest rates increase and you can no longer afford your monthly repayments

What if you get made redundant

What happens if you become ill or have an accident and you can’t go to work

What if you have a serious accident or become critically ill, and you can never go back to work

What if you die and your family is left to cope with the outstanding mortgage

These are all questions that new homeowners have to ask, and find answers to. The good news is, the insurance industry have it covered, and there are policies out there that can provide peace of mind against all these possibilities.

On the subject of rising interest rates, you are unfortunate if you end up in the position where you can’t afford the repayments, because there are mortgages that help protect you from this. The fixed rate mortgage sets a rate for an agreed period of time in which your interest rate remains the same irrespective of the Bank of England base rate. A capped mortgage allows your payments to fluctuate, but there will be an agreed rate at which the interest rate that you pay will be capped. Capped mortgages protect you for an average of 3-5 years, and then, as with the fixed rate mortgage, it will revert to the standard variable rate.

55% of all new mortgages are fixed rate deals, so they are by far the most popular type of mortgage. The capped mortgage is less popular because it still retains an element of risk, and they can be more expensive at the outset, which deters a lot of potential customers. At the end of the protected period, for both types of mortgage, you can choose to re-mortgage with another company without paying any penalties. It’s a good idea to keep your eye on the available offers as the end of the protected period approaches, because there are likely to better deals out there. The market is so competitive that new offers are always arising, and they are particularly focused on attracting re-mortgaging customers. Ask a mortgage broker to see what else is out there, as they have all the latest information to hand. You don’t have to commit yourself to anything.

If you want to insure yourself against the possibility of losing your job, then you need Mortgage Payment Protection Insurance. However it’s important to be aware that this type of insurance is designed to protect those that are made redundant, not those that resign or are dismissed. We found quotes on the Internet for around £2.45 per £100 of monthly mortgage payment. Once you stop working, the insurance will start paying after 30 days and then for a maximum of 12 months. You can buy this insurance through your mortgage lender but we don’t recommend it, they always charge more than their internet rivals.

You also have the choice of covering your mortgage payments due to sickness or illness keeping you from working. However we recommend checking with your employer first to see if they have a sickness payment plan in place. Some companies will give their employees full pay for six months for accident or illness. Even in this case, it’s still worth getting the insurance because you could be off work for more than six months. It would be very difficult to meet the mortgage repayments on statutory sickness benefits alone. This type of insurance also costs £2.45 per £100 of monthly mortgage payment, but you can combine it with unemployment cover and it’s £3.95 per month, which is less than buying the two separately. Both will cover you for a maximum of 12 months, so you really need to consider what would happen if a serious accident or illness left you permanently unable to work.

The insurance industry estimates that 1/5 of men and 1/6 of women have to permanently leave work before retirement age because of a serious illness or accident. Think about it, if you have a heart attack at the age of 45 then you are unlikely to go back to work again. With a family to support, this could be disastrous.

In this case, then you would need Critical illness insurance ? it covers the outstanding mortgage in full if you are unable to work again. Look out for “total and permanent disability” cover ? it is essential that it is included in the policy as it specifically covers the possibility of you not working again due to accident.

There are a few options to look out for with Critical Illness Insurance ? for example you need “decreasing cover” if you have a repayment mortgage. This is so the value of the payout decreases in line with the value of your outstanding mortgage. It is also cheaper than the alternative: “level cover”. You need this if you have an interest only mortgage because the outstanding mortgage balance will remain the same.

Make sure you know all the facts about the insurance you buy, because there will be times that you can’t make a claim. For example, Critical illness Insurance requires you to survive for a period following an accident or diagnosis of a critical illness, usually 28 days but sometimes 14 days. If you die before that time, then no claim can be made on your policy.

To cover the possibility of you dying within 28 days, then you need mortgage life insurance. Many lenders require you to set up a mortgage life insurance policy as a condition of you taking out the mortgage. You don’t have to buy it through the lender however, in fact it will be a lot cheaper if you don’t. Also if you live alone and do not have to support a family, you don’t necessarily need this type of insurance as the lender will recoup the money for the outstanding mortgage by selling off the property.

Mortgage Life insurance is the most popular kind of mortgage protection, and like critical illness insurance, you can choose between “decreasing cover” and “level cover” depending on whether you have a repayment or an interest only mortgage.

There’s no denying that buying all these insurance policies to protect your mortgage will cost, but there are a few ways to get the best value. Firstly, if you combine accident and illness with unemployment cover then you will save around 20%, compared to buying them separately. Some insurance companies may refer to this as “unemployment and disability” cover. Critical illness and mortgage life insurance also become cheaper if you combine the two, and we predict an average saving of 20-25%.

And don’t forget the most obvious way to save money ? shop around. Your lender will quote you on these insurances, and may even give you the impression that you have to buy your insurance through them, but you are free to buy it from any company you please. So it had might as well be the cheapest! Go online for the best deals, even better ? contact a specialist life insurance broker and ask them to find the best deals for you. They can do all the legwork and, if you’re not impressed, then you don’t have to buy through them. The advantage they have on price is due to the hot competition on the Internet, especially for insurance. Brokers offer better deals by slashing their commission and giving you a further discount. Search using any of the following terms: “cheap life insurance”, “life insurance”, “life insurance quotes” or “Mortgage Protection Insurance”, and you will come across a number of cost-effective options.

The other advantage to using a broker is that you have full access to their expert advice. When faced with the option of getting a “Guaranteed Premium” or a “Reviewable Premium” for your critical illness insurance, will you know what it means? Even if you do, which one is best? That’s when a life insurance adviser is worth their weight in gold. So we recommend picking up the phone and talking to an expert in person, it doesn’t take long and it guarantees you getting it right first time.

The bottom line: peace of mind comes at a price ? but it doesn’t have to be expensive!