Free tool
Mortgage Protection Calculator
Keep the house, whatever happens.
Cover to consider
$312,000
Clears the $300,000 loan and pays 2 years of extras.
- Monthly loan paymentPrincipal and interest
- $1,896
- Payments still to make
- $682,633
- Loan balance
- $300,000
- Extras$500 a month for 2 years
- $12,000
- Cover to consider
- $312,000
A level term policy pays the same amount throughout; a decreasing one follows the line above. Neither is the private mortgage insurance a lender asks for.
A couple has just closed on their first home, and the payment depends on both incomes. This free InsureCard calculator shows the cover that would clear the mortgage today, how the balance falls each year, and what it takes to cover property tax and insurance too, so the family could stay in the home.
Updated
The formula
Monthly payment = L × i ÷ (1 − (1 + i)^−n)
Cover = balance owed + monthly extras × 12 × years of extras
L is the balance, i the yearly rate divided by 12, and n the months left. The year-by-year line is the balance after each year's payments: what a decreasing-term policy would need to pay.
Extras are the costs outside the loan payment, property tax and home insurance, which your family would still pay after the loan is cleared.
A worked example: $300,000 over 30 years
A $300,000 mortgage at 6.5% over 30 years costs $1,896 a month in principal and interest. After 10 years, $254,328 is still owed.
Covering the full balance plus 2 years of $500 monthly extras means $312,000 of cover today.
Mortgage protection is not mortgage insurance
The mortgage insurance a lender requires, often when the down payment is under 20%, protects the lender if you fall behind; the CFPB is clear that it does not protect you.
Mortgage protection is life cover you own, sized to the loan. The payout goes to the person you name, who decides whether to clear the mortgage or keep paying it.
Level or decreasing cover?
Decreasing term follows the balance down and usually costs less. Level term pays the same amount throughout, so the extra over the balance goes to your family.
If you might refinance or move, level cover is simpler: it does not depend on any one loan.
Questions
How much mortgage protection insurance do I need?
At least the balance you still owe, so the loan could be cleared. Add property tax and home insurance for a few years if your family would struggle to pay them, and match the term to the years left on the loan.
Is mortgage protection insurance worth it?
Compare it with ordinary term life for the same amount. A term policy you own often costs the same or less and pays your family directly, so they choose how to use it.
What is the difference between PMI and mortgage protection?
Private mortgage insurance protects the lender if you stop paying and is often required with a small down payment. Mortgage protection is life cover that pays your family if you die.
Sources
- CFPB: What is mortgage insurance and how does it work? (checked )
- NAIC: Life Insurance Buyer's Guide (checked )