by: Jim Kaighn, CLU,CHFC,RHU AABA, BSBA, LUTCF
Veteran of U.S. NAVY & COAST GUARD
Today’s article is off the beaten’ path a little!! I came to light to me talking with two families within the past three months on an unrelated subject within Real Estate financing. I, back in the 1990’s, ran my own Real Estate office called “Property Finders Reality” after I earned my salesman license and hen my brokers license.. One of the most confusing parts of the financing procedure was PMI or Private Mortgage Insurance.. It was not until recently, that I found out that some people had the wrong idea of what this is, and if two families thought this, many others might be trapped in this deliemma and potential nightmare..PMI is simply insurance paid by the buyer of the property( or person borrowing the money) in order to protect the bank or lending company from losing alot of money if the borrower defaults on their loan and can not pay it.. When you go to the bank to borrow money, say to buy a house , and you borrow almost all the money and put very little down, the main bank you first see can not lend you all the money by themselves.. it is just to much risk for them to take, so they go to a secondary bank, to borrow the rest so you can get all the money you need..But, they need some kind of protection for this extra money THEY had to borrow in order to close the loan..This is where PMI comes in, It is for the protection OF THE BANK to get around 20 to 25% of the value of the loan back to them if the borrower,(you) can not pay and you default or are foreclosed on.. IT IS NOT FOR THE BORROWER TO HAVE THE LOAN PAID OFF IF THAT PERSON DIES!!!!! repeat.. It is not for the person who dies to have the mortgage paid off.. Even though the borrower pays an extra premium within the loan amount they pay each month, it is not set up to help out that family to have the home paid off..THAT IS FOR PERSONAL MORTGAGE LIFE INSURANCE TO DO THAT!!! Imagine if a family believed that PMI was set up to pay for the mortgage, say $300,000 balance, then someone died and THEN they found out the hard way that it will not be…someone, some family is going to be in for quite a SURPRISE!! Like, LOSING THEIR HOME!!!!!!!!!! and that remaining family has no recourse.. This MAJOR BOO-BOO is not the fault of you ,the borrower, it is the bank or the Real Estate agent for not explaining it correctly to you.. Now, for your knowledge, YOU CAN SUE THEM for this gross goof up.. You see, they carry insurance in case they goof up like this, called “Errors and Omission ” insurance, like doctors carry malpractice insurance in case they cut off the the wrong leg..It would be hard to prove that they did not tell you at the beginning, it is a chance for you !! So, please make sure that you have personal LIFE INSURANCE that is set up to pay off the balance of your loan, if a member of your family dies and the money stops coming in.. and please do not let the bank talk you into buying the insurance through them and putting that premium into your loan,, Buy it yourself so you can control the policy not them..I will explain more of this next month.. Knowledge is Power!! if you wish to contact me on this or on any other insurance matters, the Insurance Doctor makes house calls.. contact me at 252 202 5983 or 252 335 5983 or my e-mail is “firstname.lastname@example.org“.. Until next , smile and laugh!!
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