Define: Mortgage-Guarantee Insurance

Mortgage-guarantee insurance is a type of insurance that protects lenders against losses in the event that a borrower defaults on their mortgage payments.

In most cases, the borrower is responsible for paying the premiums for mortgage-guarantee insurance. These premiums are often included in the borrower’s monthly mortgage payments.

Mortgage-guarantee insurance is not mandatory in all cases. However, it is often required by lenders for borrowers who have a down payment of less than 20% of the home’s purchase price.

Mortgage-guarantee insurance allows borrowers to obtain a mortgage with a lower down payment, as it provides additional security to lenders. This can make homeownership more accessible for individuals who may not have a large amount of savings for a down payment.

In some cases, mortgage-guarantee insurance can be canceled once the borrower has built up enough equity in their home. This typically occurs when the loan-to-value ratio reaches 80% or less.

The duration of mortgage-guarantee insurance coverage varies depending on the specific policy. It can range from a few years to the entire term of the mortgage.

Mortgage-guarantee insurance is typically tied to a specific property and cannot be transferred to a new property. If the borrower purchases a new home, they will need to obtain a new mortgage-guarantee insurance policy if required by the lender.

If a borrower defaults on their mortgage and has mortgage-guarantee insurance, the lender can file a claim with the insurance provider to recover their losses. The insurance provider will then assess the claim and determine the appropriate payout.

Mortgage-guarantee insurance is typically specific to the initial mortgage loan and may not cover other types of loans, such as home equity loans or refinancing. It is important to review the terms and conditions of the insurance policy to understand its coverage.

The cost of mortgage-guarantee insurance varies depending on factors such as the borrower’s creditworthiness, the loan amount, and the loan-to-value ratio. It is typically a percentage of the loan amount and can range from 0.5% to 2.5% annually.