No, it is not. Homeowners’ insurance protects homeowners from loss due to theft, fire, or other disasters. In comparison, a mortgage guarantee protects the lending institution from damage due to credit default by the borrower.
Experience shows that homeowners with less than 20% invested in the cost of a home are more likely to default, subsequently making low-down payment mortgages riskier for lending institutions. To offset that risk, lending institutions and investors typically require a mortgage guarantee for loans with low down payments (less than 20-25%). A mortgage guarantee company is an expert in understanding and managing the risk related to a low-down payment for a home loan, which offsets the risk for lending institutions.
A mortgage guarantee makes it possible for families to buy homes with a lower down payment, helping them become homeowners sooner than would otherwise be possible. For first-time buyers, MG helps clear the biggest hurdle to homeownership: producing a 20% down payment. This low-down payment can help if you are a first-time buyer, as you can now afford your first home without any delays. Both first-time and move-up buyers can benefit by putting down less money and keeping cash for other uses, such as making investments, paying off debt, or paying for home improvements or emergencies.
The fee for a mortgage guarantee may vary based on the size of the down payment, the borrower’s credit score, the type of mortgage, and the extent of guaranteed coverage.
It is the lending institution that typically determines the amount of MG coverage required for each specific loan or group of loans, depending on its appetite for risk.
No. As per the MG regulations, the mortgage guarantee is irrevocable and unconditional.
No, you only need to provide all the documents required for your normal home loan.
No, it will take the same amount of time as your normal loan sanction process.
Your mortgage payments are determined mainly by the interest rate and the loan amount. A mortgage guarantee represents a tiny percentage of your mortgage payment.
No. A mortgage guarantee is not mortgage-linked life insurance, which pays off the mortgage if the borrower dies or becomes disabled. A mortgage guarantee is a credit risk mitigation tool, while the other covers your life.
The lending institution orders a mortgage guarantee while the loan is being underwritten. The loan originator consults with the home buyer to determine which loan product best meets their needs, and then establishes the MG requirements.