Mortgage Insurance

  

Categories: Mortgage, Insurance

See: Mortgage. See: Private Mortgage Insurance - PMI.

You’ve had a bumpy financial career. You’ve had a couple bankruptcies, a few divorces, and you’ve skipped out on a couple dinner checks by sneaking out the bathroom window. Now you’re applying for a mortgage, and the banker across from you is flipping through your paperwork with an extremely skeptical look.

You might have to get some mortgage insurance to get the deal done. And in many settings, mortgage insurance in one form or another, is required when buyers of homes put less than 20% down. Why? Bank risk. If there's a 20% cushion, even if the $500,000 home with $100,000 having been put down sells for $415,000, the bank likely gets all or most of its money back.

This product works like normal insurance (like life insurance or car insurance), except that it protects your mortgage lender against the possibility that you default on the loan. If you stop paying (the mortgage equivalent of sneaking out the window), the insurance will reimburse the bank for the cost of the loan. The catch: its costs are not tax-deductible.

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Finance: What is a second mortgage?4 Views

00:00

Finance allah shmoop What is a second mortgage Okay you

00:07

know what a first mortgages it's otherwise cleverly named what

00:12

is called it is called oh yeah Mortgage it's Just

00:14

a loan on a house You paid four hundred grand

00:17

for this baby Hundred grand down two hundred fifty grand

00:19

in a first mortgage And they're still fifty grand You

00:23

owe well where's that fifty large coming from the bank

00:27

wouldn't loan you any more on a first mortgage that

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was costing you six percent a year Tio you know

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to rent that money So you had to get a

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second mortgage which should things go awry and you become

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a statistic Well that's it's fully behind the first mortgage

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in the priority stack of payback So in a bankruptcy

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situation the first mortgage first what's called a first mortgage

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get it fully paid along with any fees associated with

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it and back interest accrued and any other things that

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are associated with that first mortgage it stands in line

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first in priority Then any cash leftover gets attributed to

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that second mortgage So not surprisingly second mortgage money costs

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a lot more to rent then first mortgage money because

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the risk of non payment in a bad situation is

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meaningful E higher especially when the borrowed does this for 00:01:25.136 --> [endTime] a living

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