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This isn’t to be confused with PMI, but the other type of insurance you purchase on your own. Where if something was to happen to you, the insurer pays the value of your house. I already have life insurance.
So wouldn't your life insurance be used to retire your mortgage debt by your heirs?
Compare the cost of "mortgage insurance" versus the cost of a standard 20 or 30 year term life policy to the same value, and I'll bet the standard term policy will be cheaper. If so, just do that.
The product is called “credit life” and it’s a bad bargain.
You’d have more flexibility with regular life insurance. Credit life simply pays off the mortgage, so the face value reduces each month. Maybe your beneficiary would want to retain the mortgage and use the money elsewhere. Someday interest rates on savings accounts will go up. They could continue paying on that 3% mortgage and invest the insurance proceeds in a 5% CD.
The product is called “credit life” and it’s a bad bargain.
Credit life simply pays off the mortgage, so the face value reduces each month.
Worse, it's typically written with the lender as beneficiary. It's also a single premium policy that is paid for up front so it can never be cancelled. The cost is rolled into the loan so you're borrowing that premium and paying interest on it.
Bad bargain, indeed.
Quote:
Originally Posted by Okey Dokie
You’d have more flexibility with regular life insurance.
"Mortgage insurance" IS life insurance. It's a marketing gimmick by the life insurance industry to get an agent in the door of people averse to buying "life insurance."
You buy a 15 year or 30 year level term for a level premium. The death benefit remains the same throughout the life of the policy. The beneficiary is usually the spouse. The spouse can use the money to pay off the mortgage, make the payments, or do anything else with it.
Quote:
Originally Posted by Okey Dokie
They could continue paying on that 3% mortgage and invest the insurance proceeds in a 5% CD.
I said “someday rates may go up” not that they were there today. The point being that 3% mortgage will always be 3%, but interest rates on savings may be more attractive later down the road. In the late 70s we had to convince my newly-widowed MIL it was smarter to put her life insurance proceeds into 9% CDs instead of paying off her 6% mortgage.
Worse, it's typically written with the lender as beneficiary. It's also a single premium policy that is paid for up front so it can never be cancelled. The cost is rolled into the loan so you're borrowing that premium and paying interest on it.
Bad bargain, indeed.
"Mortgage insurance" IS life insurance. It's a marketing gimmick by the life insurance industry to get an agent in the door of people averse to buying "life insurance."
You buy a 15 year or 30 year level term for a level premium. The death benefit remains the same throughout the life of the policy. The beneficiary is usually the spouse. The spouse can use the money to pay off the mortgage, make the payments, or do anything else with it.
Please tell me where I can get a 5% CD today?
Um,no, payment will be $100/month. I got these notices after refinancing
Um,no, payment will be $100/month. I got these notices after refinancing
I already have life insurance btw.
Just messing around on the internet, I found a 40 year old male in “good” health could get $750,000 coverage on a 30 year term policy for $120.00/month. How does that compare with what you’re being offered for credit life? Keep in mind the coverage amount won’t reduce, and it makes no difference if you refinance or pay off the loan. You’ll have that coverage for 30 years.
This isn’t to be confused with PMI, but the other type of insurance you purchase on your own. Where if something was to happen to you, the insurer pays the value of your house. I already have life insurance.
I said “someday rates may go up” not that they were there today.
I know. I was just being a smart aleck. Though I am making 7.12% on a US Government I-Bond.
Quote:
Originally Posted by Okey Dokie
The point being that 3% mortgage will always be 3%, but interest rates on savings may be more attractive later down the road. In the late 70s we had to convince my newly-widowed MIL it was smarter to put her life insurance proceeds into 9% CDs instead of paying off her 6% mortgage.
In the late 70s mortgage interest rates were around 13%. Since hers was 6% I'm guessing she was probably 20 years or so into it. By then the amount of earnings at 9% would have far exceeded the amount of interest she was paying on the balance. So, yes, it was smart to get the CD and not pay off the loan.
Quote:
Originally Posted by Okey Dokie
Just messing around on the internet, I found a 40 year old male in “good” health could get $750,000 coverage on a 30 year term policy for $120.00/month. How does that compare with what you’re being offered for credit life? Keep in mind the coverage amount won’t reduce, and it makes no difference if you refinance or pay off the loan. You’ll have that coverage for 30 years.
One website compares the annual premium for a $50,000 policy. At age 30 it's $375 for credit life and $78 for term life.
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Imo -
