Life insurance with a mortgage
[social_share]Life insurance is often needed in order to obtain a mortgage. This is in order to lower the risk to the mortgage lender.
Life insurance tends to be needed for home loans with high loan to value ratios. These are loans where the loan is almost as much, in some cases more, than the actual market value of the house. In these cases if the borrower dies and no one else takes the home loan on then there is a good chance that if the lender forces a sale of the house then there will still be money left on the house. In these cases the mortgage lender is relying on the personal credit of the borrower, and their willingness and ability to keep up payments on the house.
Life insurance can add to the cost of repayments on the home loans, and although the payments are usually a very low amount per month, over a period of thirty years these fees can add up. They should be included in any calculation of how much a home loan will cost, along with mortgage insurance. It may make the difference between a loan with a lower interest rate and a loan with a higher interest rate but no need for life insurance.
Many home loan lenders will try to persuade a borrower to use their life insurance product. This can often be quite expensive. These insurance products are often used as a way of generating profit from borrowers. While at times the mortgage company may be underwriting this policy, in most cases this policy will be underwritten by another life insurance policy.
Third party life insurance is also a possibility for most mortgages. The borrower should be careful that they pay careful attention to the stipulations of the mortgage policy as with a third party life insurance product they may find that they are over insuring themselves, particularly in that they may not be taking account of the loan that is being paid off and there may only be a life insurance needed for the loan while the loan is at 80% of the house value. It will often make sense to go to a broker rather than getting this product off the shelf.
In all cases the life insurance product has to be approved by the home loan lender before the home loan is granted.
