Let's talk about Mortgage Protection

After speaking with clients and even some lenders, I think it is important to discuss an important financial tool that honestly many people never think too much about. This tool is mortgage protection. We buy the house, we sign up for all of these various insurances on our purchase. But what do they all actually cover? And, if something were to happen to the person financially responsible for the mortgage such as death, or illness, do these insurances consider the most important question. How would their loved ones afford to still pay the mortgage? And ultimately, be able to keep the home?

Mortgage protection is a financial tool used to ensure that in the event of death, and sometimes chronic or terminal illness, a person's mortgage will be protected and paid for. This is a structured insurance policy that is meant to cover those expenses. The amount can be based off of the remaining mortgage balance, or if there is a living spouse, it can even be structured to cover half of the mortgage amount. As this is an insurance policy, it can also be paired with other insurance goals if the structure and premiums allow. For example, if someone wants to allocate funds for the mortgage as well as specific amounts for the death benefits.

Mortgage insurance can be structured in various ways, such as being paid out directly to the lender, or being structured as a term life insurance policy. The latter route provides more flexibility and higher payouts to your beneficiaries. Though the best way to actually structure it will depend on your specific goals.

Now that you have a general idea about what mortgage protection is, let’s get clear on what it is not. This seems to be where a lot of the confusion comes from. Many people think they are already protected if they have one of the following tools. While they each have their own benefits, they are not the same thing as protecting your actual mortgage payments.

So, what mortgage protection is not…

Mortgage protection is not PMI, and it is not homeowners insurance. PMI protects the lender in the event you default on your payments. It is required if you put a certain amount down on your down payment, usually less than 20%. It also stops being charged once there is 80% equity on the loan. The main benefit for buyers here is that it allows you to purchase a home by putting less money down. Essentially, adding the additional PMI payments to your mortgage allows lenders to feel more comfortable lending to you even though you did not put down 20% on the loan. It allows you to keep more money in your pocket, and be able to qualify for the loan without the 20% down payment expectation. But again, the ultimate benefit is for the lender in case you default. It covers their end on your mortgage, but not your loved ones if they couldn’t continue to make the payments if you left the home behind such as in a will.

Homeowners insurance simply protects against damages to your property including repairs, structural damages, and other disasters. This insurance has no impact on your mortgage payments in the event that you can’t pay.

Think of it like this. You do the smart and noble thing, and leave a home behind for your children or loved ones. But what if they aren’t in a financial position to cover the payments? So many times, people receive homes as an inheritance, but have to relinquish it because they can’t afford it. Mortgage protection is the additional step you take to ensure what your leaving behind is actually protected.

If you aren’t sure if you are covered or want to structure a policy based on your specific goals and needs, reach out via the contact form or email, or schedule a complementary strategy session and we can go over what your best options are: SCHEDULE HERE

I hope this provided a bit more clarity, and again if you have any additional questions, please feel free to reach out. Talk soon!

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