Mortgage Protection Insurance - Types Of Payment Plans

Mortgage protection insurance is another name for private mortgage insurance or PMI. The only purpose it serves is to protect the lender from the borrower defaulting on the mortgage. You see, if your Loan-To-Value or LTV is higher than 80%, it is considered a higher risk loan and the lender has a right to be better protected.

Term used further, the PITI is the abbreviation for your house monthly payment that includes principal, interest, taxes and insurance. Insurance here is referred to Mortgage Protection Insurance or Home Owner Hazard Insurance or both.

Home Owner Hazard Insurance is the coverage you must buy from an insurance company to protect the lender against partial or total loss of the actual real estate, just like you buy auto insurance to protect the bank that financed your car. No bank will give you mortgage without it. The only exception is when you have condo association and such an insurance is included into your monthly assessment or association fee.

Mortgage protection insurance is available in three payment plans:

• Single Premium Plan - under this plan, the borrower pays one lump sum as premium at closing. There is no monthly payments afterwards. This is popular with Federal Housing Authority or FHA loans and referred as Upfront an Insurance Premium or UFMIP.
• Annual Premium Plan - under this plan, the borrower pays the first year premium at closing and then, an annual renewal premium is paid monthly as a part of the total monthly payment or PITI. This plan is also called Standard Plan or Level Annual Plan.
• Monthly Premium Plan - under this refundable and by far most commonly used plan, the borrower pays mortgage insurance as a part of the PITI. A refundable premium allows the borrower to receive any unused money back, if the protection insurance is terminated before the mortgage itself is paid in full. It happens when the mortgage is refinanced or the house is sold. See more on home mortgage insurance cancellation.

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