There are two types of mortgage insurance to think about when considering the purchase of property.

A lender’s mortgage insurance and a borrower’s mortgage insurance.

A lender’s mortgage insurance protects the lender from any losses that might result from a borrower defaulting on their home loan.

This type of mortgage insurance is required when a purchaser makes a deposit of less than twenty percent of a home’s sale price. It is the reason why home buyers are urged to make the highest deposit possible when purchasing property; especially since this insurance can add an additional two to three percent to the price of a home.

The borrower’s mortgage insurance is very important as it protects the buyer from defaulting on his payments due to unforeseen circumstances including the loss of wages, illness or death.

Borrower's mortgage insurance can be purchased directly through the borrower’s lending institution, although they are more likely to pay a premium based on the initial purchase price, which is neither flexible nor necessary, than if obtained through an insurance broker or company.

The way that the majority of mortgage insurances work when offered through financial institutions is that the premium covers the cost of the initial purchase price.

As a borrower pays down his debt the loan price drops yet the mortgage insurance premium is a fixed rate - meaning that it stays the same regardless of how long it takes for a borrower to repay their loan.

A way to avoid this situation is to obtain mortgage insurance through an independent insurance broker or company where the insurance premium is based on the actual loan amount and diminishes along with the loan.

Whatever option is chosen, acquiring a borrower’s mortgage insurance is useful when signing for a mortgage.

Visit SEIA to find out more about mortgage insurance