See: Mortgage. See: Private Mortgage Insurance - PMI.
You’ve had a bumpy financial career. You’ve had a couple bankruptcies, a few divorces, and you’ve skipped out on a couple dinner checks by sneaking out the bathroom window. Now you’re applying for a mortgage, and the banker across from you is flipping through your paperwork with an extremely skeptical look.
You might have to get some mortgage insurance to get the deal done. And in many settings, mortgage insurance in one form or another, is required when buyers of homes put less than 20% down. Why? Bank risk. If there's a 20% cushion, even if the $500,000 home with $100,000 having been put down sells for $415,000, the bank likely gets all or most of its money back.
This product works like normal insurance (like life insurance or car insurance), except that it protects your mortgage lender against the possibility that you default on the loan. If you stop paying (the mortgage equivalent of sneaking out the window), the insurance will reimburse the bank for the cost of the loan. The catch: its costs are not tax-deductible.
Related or Semi-related Video
Finance: What is a second mortgage?4 Views
Finance allah shmoop What is a second mortgage Okay you
know what a first mortgages it's otherwise cleverly named what
is called it is called oh yeah Mortgage it's Just
a loan on a house You paid four hundred grand
for this baby Hundred grand down two hundred fifty grand
in a first mortgage And they're still fifty grand You
owe well where's that fifty large coming from the bank
wouldn't loan you any more on a first mortgage that
was costing you six percent a year Tio you know
to rent that money So you had to get a
second mortgage which should things go awry and you become
a statistic Well that's it's fully behind the first mortgage
in the priority stack of payback So in a bankruptcy
situation the first mortgage first what's called a first mortgage
get it fully paid along with any fees associated with
it and back interest accrued and any other things that
are associated with that first mortgage it stands in line
first in priority Then any cash leftover gets attributed to
that second mortgage So not surprisingly second mortgage money costs
a lot more to rent then first mortgage money because
the risk of non payment in a bad situation is
meaningful E higher especially when the borrowed does this for 00:01:25.136 --> [endTime] a living
Up Next
What is a mortgage? A mortgage is a loan on property. Obviously not many individuals, or companies for that matter, can or want to pay cash for the...
What is an Adjustable-Rate Mortgage (ARM)? An adjustable-rate mortgage is a mortgage that has a changing interest rate. Whatever it changes to is b...
An interest-only mortgage is a mortgage on which you only pay the rent on money borrowed, rather than on the principal.
With a reverse mortgage, payments go in the opposite direction of a normal mortgage, where you pledge your home as an asset, and receive $ each month.