Taking on a mortgage is a big responsibility, especially when it spans multiple decades. Before you accept it, you have an option to consider — in case you can’t make the monthly mortgage payments.
If you’re a homeowner, mortgage protection insurance (MPI) protects you if a health problem arises and you become disabled or can’t work for a while. If worse comes to worst, this coverage can pay off the mortgage balance if the recipient passes away.
Think of it like a safety net that protects your home from foreclosure. The decision to buy an MPI policy depends on your health and financial situation.
What Is Mortgage Protection Insurance?
MPI policies work like a type of disability or life insurance. The cost of the monthly premium depends on your age, health, and the amount of the loan. Some policies cover a mortgage if there’s a disability, and these premiums depend on the recipient’s occupation.
If you pass away with a mortgage balance and have an MPI policy, your insurer pays the rest of your loan directly to the lender. Any beneficiaries, like a spouse or children, won’t have to stress about losing the home or making mortgage payments in the future.
MPI policies that include a benefit for job loss or a disability usually cover your mortgage payments for 1-2 years. The policy will explain if there’s a required waiting period before payments get made.
These policies typically cover the principal and interest part of a mortgage payment — NOT other fees such as homeowners insurance, property taxes, or homeowners association dues. However, you may be able to add a contract rider to cover these costs.
What Else Should You Know?
- MPI isn’t required for loan approval. It comes at an extra cost that’s added to the monthly loan payment.
- Homeowners should use the DIME (Debt, Income, Mortgage, Education) method to determine how much term life insurance they should buy.
How MPI Is Different From PMI
The abbreviation MPI is often confused with PMI, which stands for private mortgage insurance. Here’s how they differ.
MPI protects you. PMI, on the other hand, protects the lender from monetary losses when you don’t repay your loan. PMI is required if you don’t have a minimum of 20% down payment of the loan amount.
When first-time home buyers pay PMI, it helps them qualify for a mortgage when they don’t have much cash for a down payment. As soon as you’ve paid down your loan balance or your home reaches 20% equity, you can submit a request to your lender — to pull PMI from the mortgage. Lenders must automatically dismiss PMI once your loan balance drops under 78% of the home’s initial value.
How Does MPI Benefit You?
The chances of you getting approved for a policy are very high. Mortgage protection insurance is normally issued on a ‘guaranteed acceptance’ basis. This can really help people who have health problems that either have to pay a lot for life insurance or can’t secure a policy.
Furthermore, if your high-risk job prevents you from obtaining disability insurance, MPI could provide protection — if you can’t pay your mortgage due to injury, illness, or death.
Where Can You Buy Mortgage Protection Insurance?
If you think MPI may be right for you, there are a few ways you can purchase a policy.
You can buy one through your mortgage lender, through a private insurance company, or through a life insurance provider like us. If you have another insurance policy with a nationwide provider, you might be able to save money by grouping the coverage together.
Also, you should find an MPI policy soon after closing on your loan. Waiting too long could disqualify you.
Get Help Today
If you have questions about the pricing and features of an MPI policy, please contact us. Or, if you need help understanding what your policy covers, an agent can go over the details with you. Give us a call at the number below!
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