After you spend a great deal of money on a house, the last thing want to think about having is paying even more for insurance. One insurance bill you will be paying is homeowner’s insurance, which helps pay for large-scale home repairs after damages to your property. However, there is also mortgage insurance, which has less to do with your property and more to do with your actual mortgage payments. There are generally two types of mortgage insurance: Private Mortgage Insurance and Mortgage Life Insurance.

Private Mortgage Insurance

Private Mortgage Insurance (or PMI) is paid directly to the lender from whom you borrow your mortgage. If you are unable to put down 20 percent or more of a down payment on the purchase price of your home, your lender will likely require you pay an extra fee for the PMI. This kind of insurance protects the lender in case you default on the loan. A PMI typically costs about one-half of one percent of the loan amount and will be canceled once your loan-to-value ratio goes below 80 percent and your lender is legally obligated to cancel the PMI once the ratio drops below 78 percent. Paying a PMI can be a frustrating extra fee, but if you make consistent payments and pay your mortgage down quickly, then the PMI can be canceled sooner and your mortgage payment will be reduced.

Mortgage Life Insurance

Unlike the PMI, you have a choice whether or not to purchase Mortgage Life Insurance, or Mortgage Protection Insurance (MPI). There is no requirement by the government or your lender to buy this type of insurance. The purpose of MPI is to protect you and your dependents against paying off the rest of your mortgage should you die, become disabled or loose your job. However, one major note to make is that MPI is a declining-benefit policy, which means the policy decreases in value as you pay off your mortgage. After all, you very well may pay off your mortgage before you die, become disabled or loose your job, and your MPI payments will have zero benefit. An alternative to MPI is getting a life insurance policy that covers more than one liability and takes care of all your dependents on all issues including your mortgage.      

One reason a homeowner might choose to buy MPI is when he or she is in poor health or is unable to qualify for life insurance, especially someone who works in a high-risk industry and cannot get disability insurance. If you are interested in getting MPI, you can apply for it through your mortgage lending company. You can use your usual lender or shop around for the best deal, since you are not required to go through the lender you are borrowing the mortgage from.

So Do I Really Need Mortgage Insurance                       

Having insurance on your mortgage is not requirement, so you do not need it. You will only be required to pay it if you do not pay enough on your down payment and are given a PMI to make up for it. Mortgage Life Insurance is only advisable if you are sure you will not be able to pay off the mortgage due to impending job loss or if you work in a high-risk work environment. Otherwise, check out life insurance policies that can cover mortgages. Another option to possibly consider is refinancing to a shorter payment term, which will allow you to pay off your mortgage sooner and save money on interest, especially at the current low rates.