Mortgage Disability Insurance

The FHA Mortgage Insurance is a requirement by the FHA that is paid by the home owner that does not have over 20% equity in the home they are purchasing. Once the equity has reached 22% of the overall loan, then this type of insurance is no longer required and should be discontinued.

This insurance is required to help ensure the financial institution is reimbursed in case the home owner defaults on the loan and it is foreclosed on.

At the time of the signing of an FHA home loan, there is a required premium payment of 1.5% of the overall cost of the amount of the loan. This is routinely incorporated into the loan so there is little to no payment for this insurance at that time. Every month until the 78% equity is acquired, there is a monthly premium of 0.5% that is paid by the home owner.

One thing homeowners should be aware of with their mortgage insurance is that not all financial institutions notify the homeowner when the equity limit has been reached. They are suppose to, and in many states are required to, but it does not always happen. There have been many instances where a home owner has paid mortgage insurance for the entire period of the loan. This would be over an additional 10% of the home’s value being given away.

There is another voluntary way of protecting your home. Mortgage Disability Insurance is such a type of coverage. This type of insurance pays the monthly mortgage payment in case the primary loan holder becomes sick or injured and cannot work.

FHA Mortgage Insurance is only protection for the financial institution where the loan originates from, not the homeowner.