Mortgage protection insurance (MPI): Do you need it?

A mortgage can be one of the longest financial commitments an individual will make in their lifetime. When you sign on the dotted line, it can be hard to predict what your life will look like in 15-30 years. 

That’s why it can be reassuring to know that your mortgage will be taken care of no matter what happens. 

Key takeaways

• Mortgage protection insurance is a type of life insurance that covers the remaining mortgage payments in the event of death or, sometimes, disability.
• With some MPI policies, the payout decreases as you pay down the principal on your mortgage.
• If there’s a payout, the money goes to your mortgage lender, not to your beneficiaries.

Mortgage protection insurance (MPI)—also known as mortgage life insurance—covers your mortgage if you die. 

If there’s a payout, the lender receives a sum equal to your remaining mortgage debt. That’s different from a standard life insurance policy, where the mortgage holder’s beneficiaries receive an amount equal to the policy’s value. 

Some MPI policies may also offer coverage in other situations where you can’t pay your mortgage, like if you become disabled or unemployed. 

How does MPI work?

The terms of an MPI policy vary depending on the insurer and the individual situation. Some policies cover the whole of the remaining mortgage amount. Others might temporarily reduce the amount of the monthly mortgage payment for situations like disability or unemployment.

How do you get MPI?

MPI is available through insurance companies and mortgage lenders. Eligible veterans might be able to get mortgage life insurance through the U.S. Department of Veterans Affairs. 

There are two types of MPI policy. With a declining payout policy, the potential payout shrinks over time as you make payments on your mortgage. With a level term policy, the payout amount stays the same throughout the term of the loan. But with both types, the monthly premium stays the same until it’s paid off.

MPI isn’t required, so it depends on your personal situation whether it makes sense for you. If you have term life insurance, it might already cover any remaining mortgage debt. And if you don’t, it’s worth comparing the costs and benefits of the two different insurance types before you make a decision. 

Potential benefits

• Peace of mind: MPI can offer reassurance that your mortgage will be taken care of should anything happen to you.
• Easier qualification: MPI applicants generally don’t need to undergo a health exam. So for those with a medical condition, it might be easier to get than life insurance.

Potential drawbacks

• Higher premium: MPI qualification doesn’t depend on things like your job or your health. So a low-risk, healthy applicant may have to pay a higher premium than they would for life insurance.
• Less flexibility: Insurance payouts go directly to the lender instead of to the family. This means that beneficiaries can’t choose where to direct the funds.
• Decreasing payoff: In some cases, the potential payout declines as you make payments on your mortgage. This means that if you’re close to paying off your mortgage, you may end up putting more money into MPI than what will be paid out to your lender.

The cost of MPI depends on things like how many years are left on the mortgage, mortgage balance, the policy holder’s age and property location.

Homeowners can use the U.S. Department of Veterans Affairs’ Veterans’ Mortgage Life Insurance Premium Calculator to estimate the cost of monthly coverage.

They’re all forms of mortgage insurance, and their names are confusingly similar. But private mortgage insurance (PMI) and mortgage insurance premium (MIP) aren’t the same as MPI. 

• PMI is required when a borrower makes a down payment of less than 20% on their home using a conventional loan.
• MIP is typically required for all Federal Housing Administration loan borrowers.

MPI can cover the remaining mortgage payments in the event of a death or, sometimes, disability and job loss. Life insurance is also an option. It’s a good idea to compare their costs and benefits when considering what might work best for you.

Buying a home is an exciting milestone. Before you start touring houses, it can help to know how much house you can afford.