To ensure that your family inherits your home and not your home loan it is advisable to take a home mortgage insurance along with your home loan. Loan insurance comes in handy in case of death of the policyholder. These covers are applicable in case of vehicle loan, personal loan as well as educational loan but it is significant in case of a home loan due to the long repayment period and huge sum involved.
The working
This works like a simple term insurance plan except that the sum assured reduces with the amount owed to the lender. These are usually single premium plans where the entire premium is paid while buying the policy. The premium amount is funded by the lending institution and the customer repays it in EMIs. In case of joint borrowers, insurers offer cover for their respective shares of the loan. Usually the bank extending the loan offers the insurance. Like, SBI Life will primarily offer the product to those availing loans from SBI. Also ICICI Bank’s customers will be able to buy this cover from ICICI Prudential Life Insurance.
Lower premiums
Insurance premium is based on the loan amount, age of the borrower and loan tenure. The customer has the option to choose between the initial sum assured equal to the loan amount or the outstanding amount. For example in case of ICICI prudential Life, If a 30 year old female buys this cover for a home loan of Rs.40 lakh with repayment period of 15 years, it will lead to a premium of Rs.65,400. if the policyholder dies during the term of the plan, benefit based on original EMI schedule is payable. Benefit will be used to pay the outstanding loan and surplus if any will be given to the nominee, if any.
Why go for it?
This kind of insurance is very important in case of an under construction property. As in the event of death of the borrower, bank has the right to attach the property if the dependents are unable to repay the loan. In such cases an insurance would pay the entire sum assured to the bank as on that date of the insured’s death. Thus outstanding in bank book is cleared and balance if any is paid to the nominee or dependent. And if the loan is repaid the policy will be considered surrendered and the liability ceases. A portion of the unutilized insurance for the remaining period is paid back to the customer on obtaining a No Objection Certificate (NOC) from the bank.
Limitations
- Covers only liability so it will not provide for dependents’ other needs incase of demise of the policyholder
- Premium is to be paid sincerely though it can be funded as part of the home loan.
- Incase of absence of life cover while purchasing a home loan, a term plan for the maximum sum assured is more feasible
- Limitation of choice as home mortgage insurance can be purchased only from the insurer who has a tie-up with your lender bank.
( Source :- http://www.deal4loans.com/loans/home-loan/importance-of-home-mortgage-insurance-with-home-loan/ )
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Help answer the question about home mortgage
After closing on a home mortgage how long after the 3 day cancellation period may the lender delay payment?I refinanced my home to get equity out of it. I closed on my loan and waited through the 3 day cancellation period. My new lender has excuse after excuse about why they are not paying! I now can't cancel the loan as I a past the cancellation period but I also cannot get my equity money or the payoff of the original mortgage. Now what? Is this illegal?
If you can find a "rent to own" property that someone would be willing to take a chance on you then you might want to go for it. However, it's going to be tough with such poor credit history, especially since you seem to think it's ok as shown by your rationalization of your "prioritizing". Also, some of these "lease-purchase" agreements are not all they're cracked up to be – so be VERY careful before entering into one of these agreements.
I think the best thing for you at this point is to try to save some money, pay off your debts on time, and get your credit score at least above 600. This way, you will have more options for financing. Although now is a great time to buy a house for those who can afford it, lenders are still a little weary of lower-income, lower-credit applicants (even though it's their fault they lent $ to people who couldn't pay in the first place).