What is MPI?

Purchasing a home is a significant life changing event for many Americans. Through home searching to financing, the process can be grueling, frustrating and full of anxiety. When moving toward the closing date, many potential homeowner's find they are confused and frustrated by the financial terms involved with the mortgage account and escrow. of these, the term Mortgage Protection Insurance, also known as MPI, often comesxxx.

Mortgage Protection Insurance, MPI, is the term used to describe coverage which will provide protection against the principal loan balance in the event of homeowner death.. The MPI policy is designed to protect both you and the lender in the event your death should precede the date of loan payment.

When unable to maintain monthly mortgage and esrow payments, the MPI coverage, which is normally paid from the escrow account, will remain in effect provided the lender maintains the payments. In the event of your death, with unpaid escrow payments, the lender may be entitled to the direct payment of the MPI.

What seems odd to some homeowners is the way in which premiusm are calculated on mortage protection insurance. The premiums on mortgage protection insurance take into account the physical healht of the borrower and take into consideration the state in which the home is located, the smoking status of teh homeowner and the homeowner's age. The premium is then based on the amount which would be paid should hte homeowner die and so the balance of the loan is taken into consideration. Unfortunately, this premium amount, once locked in, does not decrease as the principle balance of the home is paid off as the actuarial concept of the underwriting process takes into consideration the increase in age of the homeowner and the sliding death benefit is provided for in the premium calculation. So, in the worse of situations, an older homeowner, who smokes and purchases a home with a significant pay off value, may pay a significantly high premium than someone who purchases the same home at a younger age.

Mortgage protection insurance is not interchangeable with waht is known as Private Mortage Insurance (PMI). Private Mortgage Insurance is not designed to protect you and your lender in the event of your death. Instead, PMI provides coverage to the dwelling, and your personal contents, in the event of a covered loss. An example would be a hail strom which damages the roof of the dwelling.