You’ve agreed to a fairly high interest rate for your California mortgage loan (that is, compared to the interest rate you’d get if you put your money into a bank account). You’ve paid for you California mortgage loan document preparation. You’ve even given your lender the money to check your credit score and credit history so that he could approve you for a California mortgage loan. When you apply for a California mortgage loan, the closing costs and fees alone can be outrageous. Add another one onto your bill—you can’t forget to pay lender’s mortgage insurance for your California mortgage loan.
Paying for lender’s mortgage insurance might seem like asking a car dealership to pay for your automobile insurance. Essentially, when you pay for lender’s mortgage insurance on your California mortgage loan, you receive no benefit yourself. This insurance protects the lender. In the event that you cannot repay your California mortgage loan, you lender will foreclose on your property. When the company forecloses, your home is sold. If market values went down, or if the company cannot find a buyer quickly enough, they will lose money.
For example, say your original home was worth $100,000, so you put some money down and took out a California mortgage loan for about that amount. After a year or two of repaying the loan, you default and the bank forecloses. You still owe the bank $80,000 on your California mortgage loan, but when they take the property back, they find that the home is no longer worth as much as it was when you originally took out the California mortgage loan. They also have a hard time finding a buyer. Instead of being able to sell it for $100,000 like the amount of the original California mortgage loan, or even for $80,000, the amount you still owe on the original California mortgage loan, the bank is forced to sell it for $60,000. Lender’s mortgage insurance, as paid by you, covers the additional $20,000 that the bank would have lost on the California mortgage loan. It’s a lot of hassle to break even, which is why a lender insists that the borrower pay this insurance fee.
You may find that you are not charged this fee up front, but rather than it appears as a decreasing premium added to your California mortgage loan. It may also be called a private mortgage insurance policy, instead of lender’s mortgage insurance. They are the same thing, so make sure that your California mortgage loan lender is not charging you twice.
