Wednesday, August 12, 2009
Tuesday, August 11, 2009
Endowment mortgage
An endowment mortgage is a mortgage loan arranged on an interest-only basis where the capital is intended to be repaid by one or
more (usually Low-Cost) endowment policies. The phrase endowment mortgage is used mainly in the United Kingdom by lenders and consumers
to refer to this arrangement and is not a legal term.
The borrower has two separate agreements. One with the lender for the mortgage and one with the insurer for the endowment policy.
The arrangements are distinct and the borrower can change either arrangement if they wish. In the past the endowment policy was
often taken as additional security by lender. That is, the lender applied a legal device to ensure the proceeds of the endowment
were made payable to them rather than the borrower; typically the policy is assigned to the lender.
This practice is uncommon now.
Mortgage Insurance
Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the
default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a
mortgage indemnity guarantee (MIG), particularly in the UK.
For example, Mr. Smith decides to purchase a house which costs $150,000. He pays 10% in $15,000 downpayment and takes out a $135,000
mortgage. Lenders will often require mortgage insurance for mortgage loans which exceed 80% (the typical cut-off) of the property's sale
price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects the lender against his
default. The lender then requires the mortgage insurer to provide insurance coverage at, for example, 25% of the 135,000, or $33,750,
leaving the lender with an exposure of $101,250. The mortgage insurer will charge a premium for this coverage, which may be paid by
either the borrower or the lender. If the borrower defaults and the property is sold at a loss, the insurer will cover the first $33,750
of losses. Coverages offered by mortgage insurers can vary from 20% to 50% and higher.
To obtain public mortgage insurance from the Federal Housing Administration, Mr. Smith must pay a mortgage insurance premium (MIP) equal
to 1.75 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower's behalf.
Depending on the loan-to-value ratio, there may be a monthly premium as well. The United States Veterans Administration also offers insurance
on mortgages
Mortgage Life Insurance
Why is Mortgage Life Insurance required?
Not everything in life comes with an announcement. One such thing is death...
So if you have purchased a property or home based of a housing loan, have you ever considered what would happen (god forbid) if you happen to meet death unannounced, how is your family going to pay off this mortgage loan that you went for?
Answer is Mortgage Life Insurance. Just like Life Insurance Policies, Mortgage Life Insurance in an eventuality of your death it takes care of paying off the remaining balance of your Mortgage Loan.
All of us while we continue to live, do everything possible to keep our families happy, the last thing you ever want to do is to drown them in a debt especially when you are not going to be around any more, so if you have ever thought about it, then it is time to do something about it, the tool that is at your disposal is Mortgage Life Insurance.
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