Difference between PMI and MPI
What is the difference between mortgage protection insurance and private mortgage insurance? The two are often confused but they are, in fact, very different.
Private Mortgage Insurance (PMI)
PMI is designed to protect your mortgage lender. If your deposit is less than 20% of the property purchase price, you will need PMI as you will be considered a ‘risky investment.’
There are multiple ways to pay for PMI, so make sure you ask your lender before agreeing to your mortgage. The most common method is to add the premium onto your monthly mortgage repayments. The value of PMI premiums typically range from 0.5% to 1% of the entire mortgage.
Note that when your loan-to-value ratio is 80% you have the right to discontinue your PMI premiums. They should automatically be cancelled at 78% by your lender but, in some cases, they are missed. Make sure you contact your lender to remind them to cancel your premiums.
Mortgage Protection Insurance (MPI)
MPI is designed to protect you, the borrower. It will cover your mortgage repayments if you lose your job, become disabled or in case of death. However, it isn't a legal requirement – it's completely voluntary. A typical MPI policy will cover mortgage payments for up to two years and will pay 65% of your monthly income.
You should consider MPI if you have a long line of poor health in your family. However, if you have good health and a secure job, your life insurance will usually cover you if the worst was to happen.
To claim MPI, you must be off work for a certain period. This is known as a ‘waiting period,’ which can range from 30 to 180 days. The longer the waiting period, usually, the cheaper the policy.