Safe mortgage or how not to lose mortgaged real estate
Mortgage is serious and long-term affair. To make it safe, you need to know certain rules and properly foreseen force majeure. Mortgage insurance is considered to be a major security tool. The majority of mortgage borrowers are optimists. They are confident in their skills, hoping for a better future and planning to pay a loan quickly and live in own apartment happily ever after. Pessimists worry about the twists of fate that may prevent loan repayment. Agree that sudden loss of job, serious disease or injury when a person becomes disabled - all these factors make bank loan repayment impossible and bank will take the apartment and drive you out into the street. Some people refuse a mortgage because of such fears. So, you should make out a mortgage in such a way that provides safety for you and your family and protects from risk of losing your home. But these risks can be of three types - material, financial and related to family. First type of risks can be insured. The second can be solved in cooperation with the bank that issued a loan. The third - is a personal decision, but there are several optimal behavior scenarios.
So, insurance is an obligatory factor. Current legislation norms say that property (collateral for the loan) insurance is a prerequisite for mortgage loan. The house could burn down, dump of radioactive waste can be found in immediate vicinity to the house and apartment can become unsuitable for life: for example, because of construction failures. But you still will need to repay the loan as these facts do not affect the sum of your debt. Insurance is needed to protect the borrower in such cases. If the mortgaged real estate becomes unusable, or badly damaged, the insurance company will pay the refund and cover repair costs.
In addition, there are two other types of insurance: life and disability of the borrower insurance and the legal purity of transaction insurance (title insurance). Some banks do not insist on title insurance, but insist on life insurance. By law, the borrower may refuse to insure, but then the interest rate on the loan for it will be much higher than for lending program with insurance. The difference can be 5-10 percentage points. In fact, mortgage programs without life insurance and title fixes prohibitive interest rates. Thus, it would be cheaper to pay for insurance than the huge loan interest without insurance. Extra costs, of course, encourage no one, but life and disability insurance as well as title insurance protect the interests of the borrower along with the interests of the lender. Experts from businessschoolonline.org underline that mortgage insurance includes three types of insurance - property insurance, title transaction insurance and life insurance.
Darya Tokareva for businessschoolonline.org with the assistance from Jessi Johnson debt consolidation company in Vancouver.