PMI, or private mortgage insurance, is usually necessary when a mortgagee puts down less than 20% on the down house_insurance_tenantpayment. Private mortgage insurance protects the lender if the mortgagee defaults on the loan but does not protect the borrower. This kind of insurance is expensive and is based on the amount of the mortgage. This insurance is usually dropped once homeowners had achieved 20% equity in their home.

Unfortunately, it became a practice for some lenders in the 1990′s to take advantage of these insurance payments by failing to tell homeowners when they reached enough equity. The homeowners in turn would continue to pay unaware. In 1998, the Homebuyer’s Protection Act passed which required lenders to inform homeowner’s when the equity has reached 20% and to automatically end the insurance when the home equity reached 22%. In cases where home appreciate caused the equity to go above required levels, the HPA does not require the lender to cancel the PMI.

While most lenders will drop the insurance when the threshold is reached, others will still require additional follow up from the borrower. As directed by the HPA, the lender must discontinue PMI within 30 days of the termination or cancellation date. After cancellation, the lender is required to send notification that coverage has been dropped and that no payments need to be made in the future.

Getting a mortgage is bad enough – what with terms like fixed rate, discount, variable etc – so mention mortgage insurance and naturally your eyes will start to glaze over.

However, mortgage insurance is an extremely important insurance to have – in fact, it can the difference between keeping a roof over your head or ending up having your home repossessed.

If you recently took out a mortgage, you may remember the lender asking you whether you wanted mortgage payment protection insurance. It probably sounded expensive and unnecessary. And while, in some cases, there are companies who like to charge you too much for the product, it doesn’t have to be that way.

As for it being unnecessary – get the right policy and at the right price and it will be an invaluable safety net for you. So, what is mortgage insurance? It is a product whereby should you be unable to meet your mortgage repayments due to being made involuntarily redundant or due to being able to work because of sickness or maybe an accident – then it will cover your mortgage repayments.

Your mortgage repayments (and sometimes other mortgage related outgoings too) will be covered for up to a set period of time (typically 12 months but this can vary from provider to provider) to give you enough time to find another job, or get well etc.

Many people may think that mortgage payment protection insurance is a waste of money, using the old adage “It’ll never happen to me”. However, this is not true. Being unable to work – and therefore having to struggle on state benefits – due to involuntary redundancy, accident or sickness can happen to anyone. It does not discriminate and can strike anyone at any time.

Therefore, if you are in full time employment for more than 16 hours a week and you have a mortgage, then taking out insurance against the financial ramifications makes sound sense.

Despite what the press says, it doesn’t have to be expensive to take out this kind of insurance, and nor do you have to take out a policy with your current mortgage lender. This means you are free to shop around to get a policy that offers you comprehensive protection without a high price tag!

If you are looking for mortgage protection insurance, then do not automatically accept the first quotation you get – premiums can vary wildly, as can the terms of the policy and the benefits.

Do your research – the internet is a quick and easy way to compare policies – and then make a decision from there.