by Jacqueline J. Poole

As you start the process of applying for a mortgage, you will probably get into discussions about mortgage insurance.

There is frequently some confusion among homeowners about the kinds of insurance they are discussing when they are talking to their bank.

Banks feel they have to protect themselves when a lender has a very little down payment. The concept is that the buyer does not have enough equity, or enough of his own money invested in the property to make walking away from it a less attractive prospect. These small or no down payment mortgages worry banks since the temptation to default is more than normal.

The bnak then requires that the buyer take out an insurance policy on the mortgage, but the beneficiary of the policy is not the buyer, but the bank. Note that the bank is the beneficiary, not the borrower or his family.

If you are concerned, as a responsible homeowner and family man, that your family will not be able to continue to pay the mortgage and live in their home if anything occurs to stop your flow of income, you may be interested in taking out mortgage life or disability insurance.

With this type of insurance, your family will not have to worry about keeping up the mortgage payments in case anything happens to you, the primary breadwinner.

If you want to protect your family in the event of your death, you would subscribe to mortgage life insurance, which would pay down the outstanding balance on your home in the case of your death. The most popular type of mortgage life insurance is decreasing term insurance, in which the policy amount decreases over time, just as the mortgage is decreasing. In other words, you would not have to pay the premium on a $200,000 policy as the outstanding balance on your home gets lower.

In the instance of mortgage disability insurance, the amount of the monthly home loan payment will be guaranteed for the allowable period of the disability.

It is very important to understand which types of insurance your bank is talking about when you discuss mortgage insurance. Some lenders may be anxious to sign you up for mortgage life or disability insurance since they can make a commission from it, but if you are in a situation with a low down payment loan, your bank may only be talking about protecting his interests, not yours, when he discusses mortgage insurance with you.

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