Your home is possibly your most valuable asset, protect it with mortgage insurance.
In South Africa mortgage insurance is highly regulated by government due to the massive number of people in need of houses. The housing problem has been existed for many years. After the first democratic election in 1994, government introduced RDP houses to close the gap between those with homes and those too poor to afford to buy a house of their own.
However, RDP scheme only managed to hand out a certain number of houses across the country and still did not make a dent to the massive housing problem in the country. The programme was also hit by a number of controversies such as low-quality materials being used, corruption pertaining to the awarding of houses among other things.
Some people have been on the housing lists for eighteen years and are still without a roof over their heads. Squatter camps mushroom every day in the outskirts of big cities such as Johannesburg. There was a need for a further solution and new housing model to tackle these ever increasing problems.
One of the proposed and rolled out solutions was government subsidies, however, not everyone qualifies. Some people earn too much and others earn below the required amounts, leaving only a very few and a very select group of individuals able to afford and qualify for this subsidy.
Mortgage Insurance for South Africans
The Department of Finance introduced mortgage insurance to help people who are really in desperate need of houses. It is also a means intended to reduce the gap in the housing market. The majority of people do not have access to finance to buy their own houses.
The South African Department of Finance is collaborating with financial institutions such as banks to help change this state of affairs. Banks are the primary beneficiaries of mortgage insurance. The financial institutions inclusion was prompted by the need for accurate fiscal control which is something banks are well known for.
Consequently, the mortgage default insurance will act in accordance with South African Financial Laws. The Department of Finance, the Banking Association of South Africa (BASA) as well as the Department of Human Settlements were involved in discussions to ensure success of the project once it launched.
Recent Mortgage Insurance Policy Reviews
In March 2013 the Department of Finance reviewed the mortgage insurance policies to ensure that there were no serious differences with local insurance policies.
Government, in particular, the Finance Department promised to do whatever it takes to ensure that the money intended for mortgage insurance was released on time by the financial institutions and monitoring would be put in place so that targets can be met.
All in all government has promised to put together a strategy in place for the overall success of mortgage insurance and perhaps the consumer will be able to benefit this time around.
Mortgage Default Insurance Fund
The intended launch of the Mortgage Default Insurance Fund (MDI) by the National Housing Finance Corporation has been hailed as the long-awaited solution to the thorny issue of access to housing as well as mortgage financing for the blue-collar workers and the poor families.
Through the innovative MDI “lower-income” buyers have a prospect to meet the criteria for housing finance that in normal circumstances they would not be eligible for. However, it seems the government is stalling on the scheme first announce by President Jacob Zuma back in 2011.
The Treasury is the body that has to make a decision on when to launch the insurance scheme. It was reported in the media that there was the revised the version of the MDI handed to the Treasury. The Treasury also still has to give a go ahead and sign on the application by the Housing Finance Corporation NHFC to the Financial Services Board for a licence to act as an insurance for scheme.
Private Mortgage Insurance
Private Mortgage Insurance (PMI) has people up in arms because it does not assist the person paying the premium but rather the bank or financial institution offering a loan to the homeowner. Those unaware of this type of insurance may think it protects them, but it instead protects the lenders.
It is quite an expensive insurance; PMI premiums that the homeowners have to pay, are large and exceed car and homeowners insurance premiums by far. The policy does not offer any protection to the policyholder.
However, there is an also a lesser known mortgage insurance that pays off your mortgage in case you pass away. The most popular yet unhelpful to the borrower is the PMI that insures the financial lenders in case the policyholder fails to continue with payments for the mortgage.
The lender usually requests the borrower to take out the private mortgage insurance policy because they do not have the minimum 20 percent down payment required. Lenders view borrowers who fail to pay a down payment as risky and will require that they insure their mortgage with private mortgage insurance. The lender requires insurance to counter a non-payment.
The Basics of Private Mortgage Insurance
TPMI usually varies depending on your loan amount as well as credit risk. Also, Private Mortgage Insurance is based on a percentage of your monthly mortgage payments.
Due to various factors lenders are not willing to lend to owners who are likely to default, so those who are considered high risk will normally be in this category and required to take out a Private Mortgage Insurance.
How to Avoid Private Mortgage Insurance
There are several ways to avoid taking out a Private Mortgage Insurance policy. Before you approach a lender make sure you have the 20 percent or more down payments. This way you will avoid Private Mortgage Insurance.
If you have enough money pay more than 20 percent. If you do not have the 20% down payment, consider asking your parents to assist. This way you won`t have to worry about taking a second loan/mortgage. It will also help reduce your monthly premiums and the lender will feel the risk of default is reduced.
Once you have paid twenty percent and only owe eighty percent of your mortgage repayments you can cancel the PMI. Unfortunately, it may take a while for you to pay the twenty percent due to the fact that most of the initial payments will go straight to interest and very little goes to your principal.
However, if after two years you have not defaulted and have always paid on time, some lenders will let you cancel the PMI. Another option is to pay a higher interest rate on your home loan. Thirdly, another way to evade PMI insurance is to take another loan for the extra amount you require.
This will make your loan amounts to be 80/20 or 80/10/10 or 80/15/5, remember the amounts 10 and 5 will be the down payment you bring to the table. Preferably those amounts should be money you have saved for on your own. If this is the option you are going for, you will have to add the costs of all the loans together.