Posted on: 04th Mar, 2010 12:04 pm
is it mandatory or even an option to have mortgage life insurance on a usda home loan?
Hi Hopie,
As far as I know, you do not require a mortgage insurance premium for a USDA loan but USDA charges a 2% funding fee in order to guarantee the loan. This fee can even be financed into the loan amount.
Thanks
As far as I know, you do not require a mortgage insurance premium for a USDA loan but USDA charges a 2% funding fee in order to guarantee the loan. This fee can even be financed into the loan amount.
Thanks
hopie, it is never a mandate that you have mortgage life insurance on your loan, no matter the lender or the type of mortgage. in fact, most such policies written for borrowers are not particularly valuable.
let me explain that: if you go buy a life insurance policy for, say, $400,000, and you owe $200,000 on your home; your heirs will receive $400,000 from the insurance company. they then have the opportunity to pay the mortgage debt in full or not. if they choose to do so, they'll have $200K left over. if they choose not to pay it, they'll still have $400K and all they'd need to do is simply continue to pay the mortgage until it was paid off, the house sold, etc.
with mortgage life insurance, if your mortgage balance is $200K at the time of your death, that's how much the insurance company pays to the lender. your heirs get nothing except the paid-off home. when you buy the insurance with your balance at $200K, that's how the premiums you owe are determined. however, as your balance declines, the insurance benefit also declines. so, if you owe $100K at the time of death, that's what gets paid to the lender and the heirs again get nothing.
your smartest move, if you're concerned about your legacy and the payment in full of your mortgage when death arrives at your door, is to obtain a regular (term) insurance policy from your regular agent.
let me explain that: if you go buy a life insurance policy for, say, $400,000, and you owe $200,000 on your home; your heirs will receive $400,000 from the insurance company. they then have the opportunity to pay the mortgage debt in full or not. if they choose to do so, they'll have $200K left over. if they choose not to pay it, they'll still have $400K and all they'd need to do is simply continue to pay the mortgage until it was paid off, the house sold, etc.
with mortgage life insurance, if your mortgage balance is $200K at the time of your death, that's how much the insurance company pays to the lender. your heirs get nothing except the paid-off home. when you buy the insurance with your balance at $200K, that's how the premiums you owe are determined. however, as your balance declines, the insurance benefit also declines. so, if you owe $100K at the time of death, that's what gets paid to the lender and the heirs again get nothing.
your smartest move, if you're concerned about your legacy and the payment in full of your mortgage when death arrives at your door, is to obtain a regular (term) insurance policy from your regular agent.
