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  The Society for Consumer Advocates and Mavens

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HOMEOWNERS MORTGAGE INSURANCE

This type of insurance can be risky. You are required by the money lender to purchase mortgage insurance when you put down less than 20% of the purchase price of the property you are buying. When you purchase mortgage insurance it protects the lender if you default on the loan and cannot make the payments on the property.

However, if possible, consider trying to avoid making payments for this insurance directly to the lender because you could end up making extra premium payments over and above what you need to. After your equity payments exceed 20% of the property's value, unfortunately, you may still be making monthly payments which include payments for mortgage insurance that you no longer need!

Do your mortgage insurance deal with the lender so that your insurance payments are paid separately and not included as part of your monthly mortgage payments. This way you can drop the insurance policy once the equity in your property reaches 20%.

Additionally when considering your loan, do not sign-off on any loan that makes you accept any pre-payment penalties if you decide to pay-off your loan early or if you decide you want to make accelerated payments which enables you to also pay-off the loan quicker than you may have anticipated when you originally signed-off on the loan with the lender. For example, making 13 payments every 12 months on a 30-year loan can help you pay-off your loan in just 22 years and save you up to $100,000 on many typical 30-year loans!

SUPPLEMENTAL SOURCE: CONSUMER REPORTS MAGAZINE MAY 1998

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