What is the Difference Between Mortgage Protection and Mortgage Insurance?
🆚 Go to Comparative Table 🆚The main difference between mortgage protection insurance (MPI) and mortgage insurance (such as private mortgage insurance, PMI) lies in the purpose and beneficiaries of the insurance policies. Here are the key distinctions:
Mortgage Protection Insurance (MPI):
- MPI is a type of life insurance that protects the borrower by paying the mortgage when the borrower can't.
- It is voluntary and not required by lenders.
- MPI is designed to cover your mortgage payment for a certain amount of time if you lose your job or become disabled, or pay off the mortgage when you die.
- The cost of MPI varies widely depending on factors like age, health, lifestyle, location, and occupation.
Mortgage Insurance (such as PMI):
- PMI is designed to protect the lender in case of a borrower's default.
- Lenders typically require PMI when a borrower's down payment is less than 20%.
- PMI ensures that the lender will get its money back, and it is an added fee that the mortgage holder incurs.
In summary, MPI is a voluntary insurance policy that protects the borrower by covering their mortgage payments in case of unforeseen circumstances, while mortgage insurance (such as PMI) is a required insurance policy that protects the lender in case the borrower defaults on their mortgage payments.
Comparative Table: Mortgage Protection vs Mortgage Insurance
Mortgage protection and mortgage insurance are two different types of insurance policies that serve distinct purposes. Here is a table highlighting the differences between the two:
Feature | Mortgage Protection Insurance (MPI) | Mortgage Insurance |
---|---|---|
Purpose | Designed to pay off the mortgage balance in the event the borrower passes away, becomes disabled, or unemployed. | Protects the lender's investment in case the borrower defaults on payments, dies, or otherwise cannot pay the mortgage. |
Beneficiary | The mortgage lender is the policy's beneficiary, meaning the lender receives the payout. | The policy protects the mortgage lender or titleholder. |
Types | MPI is a form of life insurance. | Mortgage insurance can refer to private mortgage insurance (PMI), qualified mortgage insurance premium (MIP) insurance, or mortgage title insurance. |
Coverage | Typically covers a certain period and is structured to offer benefits that track the falling mortgage balance as you pay it down. | PMI is required for conventional loans when the down payment is less than 20%. MIP is used in FHA loans if the down payment is less than 20%. |
Requirement | Mortgage protection insurance is not required by law, but it can be a valuable option for homeowners who want to protect their families from the burden of the mortgage in case of unforeseen circumstances. | Mortgage insurance is typically required by lenders to protect their investment in case the borrower defaults on payments. |
In summary, mortgage protection insurance is designed to protect the borrower's family by paying off the mortgage in case of unforeseen circumstances, while mortgage insurance protects the lender's investment in case the borrower cannot meet their mortgage obligations.
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