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Yogi Bear’s mortgage insurance

By Jay MacDonald · Bankrate.com
Tuesday, October 5, 2010
Posted: 10 am ET

One minor hurdle that we all face when learning to read is the homonym; two words that are pronounced or spelled the same but have different meanings. Bear the weight versus Yogi Bear. There is similar confusion among homeowners between "private mortgage insurance" and "mortgage insurance." Here are the bare facts about both.

As many homeowners discover the hard way, private mortgage insurance, or PMI, is an insurance policy in addition to homeowners insurance that a mortgage lender may require if you're unable to come up with a 20 percent down payment on a home purchase.

Yes, PMI is actual insurance, even though its premiums are often bundled in with your mortgage payment. But the only party it protects is your lender, as they will collect on the policy should you default on your mortgage. You're paying for the additional risk they bear by lending you more dough than they'd prefer.

The Insurance Information Institute estimates that PMI generally runs between $250 and $1,200 per year. You are within your rights to drop PMI once your loan balance falls below the magic 80 percent figure, provided your payment history is solid, but it's your responsibility to notify your lender to do so.

The other mortgage insurance is, well, mortgage insurance, also called mortgage protection insurance. Unlike PMI, you, as the homeowner, benefit from mortgage insurance, which pays off your house note upon your demise.

The traditional route to mortgage insurance was a life insurance policy with a decreasing benefit amount that matched your ever-shrinking mortgage obligation over the life of the loan. In recent years however, term life insurance rates have dropped dramatically, making it a popular and affordable option.

While private mortgage insurance and mortgage insurance have very different meanings, there is one thing they share in common: you don't want to "collect" on either one!

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