Quote:
Originally Posted by Stuart
I suppose that is the case in some instances. However, it's also entirely possible that someone could be extremely credit worthy when they take the loan, only to be made redundant a couple of years later, and saddled with a potentially large mortgage that they can no longer meet the payments on.
Such an insurance system would seem to be handy in these cases.
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I don't think that's how it works. The premium is paid to the mortgage lender by people who cannot afford to pay a 20% down payment. The issue is that in cases where the homeowner is forced to sell the house and the sale value is less than the mortgage balance, the lender will lose out. This is unlikely to happen when 20% of the mortgage has been paid off, and the premium is not payable in those circumstances. It's just to cover the lender's risk for the time from taking out the mortgage until 20% of the house value has been repaid. If someone can no longer afford the payments, the house will still be sold.
As said, I can see how it would help some, but how it could also encourage irresponsible lending. Then again, a 20% down payment is a hell of a lot. I can see this working when coupled with a more sensible down payment (say 10%).