|
|
Disadvantages of mortgage insurance
Home » Real Estate » Mortgage Insurance » Disadvantages of mortgage insuranceThe obvious disadvantage of mortgage insurance is the cost. Insurance policies on a $100,000 loan generally cost fifty to one hundred dollars per month (one-half to one percent of the loan value), and you're not even paying to protect yourself. You're paying to protect the lender.
Thus, you generally should get rid of mortgage insurance as soon as possible. Its main benefit is helping you purchase a home, but once you have the home, it no longer benefits you. You can cancel your mortgage insurance if you have paid twenty percent of your original loan, but a 2000 study by HomeGain found that 2.7 million Americans unknowingly continued to pay mortgage insurance when it was no longer required.
In addition, mortgage insurance has a hidden danger in that it tempts buyers to buy something they can't really afford. Mortgage insurance allows you to buy a bigger home and buy it sooner, but if you can't make the monthly payments, you'll still default. When deciding what size loan you can afford, err on the conservative side, as the insurance helps the lender, not you, if you default on the loan. The fact that mortgage insurance allows to buy a big house doesn't necessarily mean you should buy it.
Related Mortgage Insurance Articles
- Why does my loan come with mortgage insurance?
- Why would I want mortgage insurance?
- Disadvantages of mortgage insurance
- How can I get rid of mortgage insurance?