Do I Need Mortgage Insurance When I Put 53% Down?

Your ability to put a sizable down payment on a mortgage can make it much easier to carry ongoing mortgage payments. Although a 53 percent down payment could be generally construed as rare, you might be purchasing a low-cost property or you might have come into some money through an inheritance or lottery winnings. Although private mortgage insurance, usually called PMI, is typically associated with the percentage of your down payment, you might want to look at other insurance products that can help pay for the mortgage in the event of a catastrophic incident.

Private Mortgage Insurance

Private mortgage insurance is designed to protect the lender from the risk of default when the loan-to-value ratio, or LTVR, is high. The LTVR is equal to the amount of the mortgage divided by the appraised value of the property. A typical rule of thumb is for lending institutions to require PMI when the LTVR is higher than 80 percent. The cost of the PMI is generally expressed as a percentage of the loan and added to the mortgage amount, which in turn increases your monthly mortgage payment. With a 53 percent down payment, your LVTR would equal 47 percent and you should not be required to purchase PMI.

Life Insurance

When your monthly mortgage payments are sizable enough that the loss of your income due to your premature death may force your family to sell the home, some consumers consider life insurance as a means of providing the necessary funds to keep that from happening. Mortgage life insurance is a relatively low cost product with level premium payments but a decreasing coverage amount meant to mimic the decreasing amount of the mortgage balance. When the mortgage is paid off, your protection expires. Alternatively, you could consider term life insurance, an affordable product with a level death benefit that lasts until age 65 or 75. Premiums are typically guaranteed for an initial period, such as 10 years, then increase and remain level for a new period. Term life insurance can be used to meet any short-term insurance need, such as a mortgage debt that is expected to be paid off in a certain number of years.

Disability Insurance

When an illness or accident prevents you from working, the loss of your income could be just as devastating as a death. Private disability insurance plans are designed to pay you a benefit based on your income in these circumstances. Disability insurance generally covers you until age 65 while you are working and therefore can provide adequate protection for a short-term need such as a mortgage that may only be outstanding during your working lifetime.

Critical Illness Insurance

Sometimes a major illness can cause mounting medical bills but does not impede your ability to work and earn an income. Critical illness insurance pays a lump sum benefit in the event you are diagnosed with a major life-threatening condition such as cancer, heart attack or stroke. You receive the entire benefit upfront and can use it in any way you wish, therefore alleviating the pressure caused by the costs of your medical treatments and allowing you to continue to meet your mortgage payment obligations.

About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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