Finding Mortgage Protection: Where To Start Your Research

If you're looking to buy a home, you might be wondering about mortgage protection insurance and whether you need it. Mortgage protection insurance (MPI) is an insurance policy that pays off the remainder of your mortgage if you pass away or are unable to work due to disability or accident. It is different from private mortgage insurance (PMI), which safeguards the lender if you stop paying your mortgage. MPI can be purchased from banks, mortgage lenders, life insurance providers, insurance brokers, or third-party insurance companies. When considering MPI, it's important to weigh the pros and cons, as it may not be the best financial decision for everyone.

Mortgage Protection Insurance (MPI)

MPI is not the same as private mortgage insurance (PMI) or mortgage insurance premium (MIP). PMI is required when a borrower makes a down payment of less than 20% on a conventional loan, while MIP is typically required for Federal Housing Administration (FHA) loan borrowers. Unlike PMI and MIP, which protect the lender, MPI pays off the remaining mortgage loan, and the death benefit goes directly to the lender.

The cost of MPI depends on various factors, including the age and health of the policyholder, the location and size of the loan, and the number of years left on the mortgage. MPI policies can be purchased from banks, mortgage lenders, insurance brokers, or third-party insurance companies. While MPI offers peace of mind and guaranteed acceptance, it may not be necessary for everyone, and it is important to compare the costs and benefits with other insurance types before making a decision.

In summary, MPI can be a good option for individuals who cannot qualify for or afford traditional life insurance policies or those with unstable employment who may need assistance with their mortgage payments in the future. It ensures that the mortgage will be taken care of in the event of the policyholder's death or disability, providing reassurance to the policyholder and their family.

Private Mortgage Insurance (PMI)

PMI rates vary depending on the down payment amount, the size of the mortgage loan, and the borrower's credit score. Generally, PMI will cost less if the borrower has a higher credit score. The average annual cost of PMI typically ranges from $30 to $70 per $100,000 borrowed.

PMI can be paid in different ways. Sometimes, it is paid with a one-time upfront premium at closing, or it can be paid with a combination of upfront and monthly premiums. The monthly premium is typically added to the borrower's monthly mortgage payment.

It is important to note that PMI is not required for all types of mortgages and can be avoided by making a 20% down payment. Additionally, PMI can be cancelled once the borrower's equity reaches 20%.

While PMI provides protection for the lender, Mortgage Protection Insurance (MPI) is a type of life insurance that offers coverage for the borrower and their family. MPI ensures that the borrower's family can continue making mortgage payments if the borrower dies before the mortgage is fully paid off. Some MPI policies also provide coverage if the borrower loses their job or becomes disabled.

Federal Housing Administration (FHA) loans

FHA loans have limits on how much you can borrow, set by region, with lower-cost areas having lower limits and high-cost areas having higher limits. For 2025, the limits range from $524,225 to $1,209,750, with "special exception" regions, including Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where construction costs are very high, having even higher limits.

FHA borrowers must pay two types of mortgage insurance premiums (MIPs)—one upfront as part of the closing costs and the other monthly, included in the monthly payment to the lender. FHA mortgage insurance is required for all FHA loans and offers protection to the lender, not the homeowner, in the event of default. The cost of FHA mortgage insurance is the same regardless of credit score, with a slight increase for down payments of less than five percent.

The FHA also offers loan programs such as the Graduated Payment Mortgage (GPM) and the Growing Equity Mortgage (GEM), which are designed for borrowers who expect their incomes to increase. These programs offer shorter loan terms and start with lower monthly payments that increase over time.

Pros and cons of MPI

Mortgage protection insurance (MPI) is a type of insurance that covers your mortgage payments if you lose your job, become disabled, or die. It is different from private mortgage insurance (PMI), which safeguards the lender in case of the borrower's default. Here are some pros and cons of MPI to help you decide if it is right for you:

Pros of MPI:

• Guaranteed acceptance: MPI policies are typically issued on a "guaranteed acceptance" basis, which means you cannot be denied coverage based on your health condition. This is beneficial for those who have difficulty obtaining life insurance or pay high rates due to health issues.
• No underwriting required: MPI plans often do not require underwriting, and most policies do not mandate a medical exam for qualification.
• Peace of mind: MPI provides peace of mind for you and your family, ensuring that your mortgage payments will be covered in the event of death, disability, or unemployment. This can help prevent foreclosure and keep your family from being responsible for paying off the mortgage.

Cons of MPI:

• Cost: MPI adds an extra expense to your monthly budget, and the cost may vary depending on your occupation, age, and individual circumstances. It might not be the best use of your money, especially if your mortgage is almost paid off or if you have other financial priorities.
• Limited payout: MPI policies typically only cover the principal and interest portion of a mortgage payment, and the payout decreases as you pay off your mortgage. Unlike life insurance, MPI does not provide a lump sum payout to your family upon your death.
• Alternatives available: There are potentially better alternatives, such as life insurance, which provides a direct payout to your beneficiaries. Additionally, MPI might not be necessary if you have other forms of insurance, such as disability insurance, or if you are in good health and have secure employment.
• Cancellation: While MPI policies can usually be cancelled at any time, there may be specific rules, penalties, or fees associated with ending coverage.

Where to find MPI coverage

Mortgage Protection Insurance (MPI) is a type of insurance policy that ensures your family can continue to make mortgage payments if you, the policyholder and mortgage borrower, pass away before your mortgage is fully paid off. MPI also provides coverage for a limited period if you lose your job or become disabled after an accident.

When considering MPI coverage, it is important to understand the differences between MPI and Private Mortgage Insurance (PMI). PMI is a type of protection for the lenders of your home loan if you stop making payments. It does not provide any coverage for your family if you pass away unexpectedly. MPI, on the other hand, offers peace of mind by ensuring that your family will not be responsible for paying off the mortgage or risk losing the house due to foreclosure in the event of your death or disability.

You can find MPI coverage by researching and comparing policies from different insurance providers. It is recommended to shop around and explore various options before purchasing an MPI plan. This allows you to compare the coverage, limitations, and benefits offered by different insurers. Additionally, consider your own circumstances, such as your health condition and the likelihood of obtaining traditional life insurance. MPI can be beneficial if you have difficulty qualifying for or affording standard life insurance policies.

Online resources and tools are available to help you understand your options and make informed decisions. For example, the Consumer Financial Protection Bureau (CFPB) provides general consumer information and resources for homeowners, including those seeking information about mortgage protection. They offer a "Find a Counselor" tool to locate HUD-approved housing counseling agencies in your area, and you can also call the HOPE Hotline at (888) 995-HOPE (4673) for assistance. These resources can provide valuable guidance and support as you navigate the process of finding MPI coverage that suits your needs.

Frequently asked questions