Does mortgage insurance protect me if I'm disabled or lose my job? No, mortgage insurance protects the lender against loss in the event that you default. You pay the premium, but the lender receives the protection. The sole benefit to you is that, with mortgage insurance, lenders are willing to make loans with down payments smaller than 20 percent of purchase price or appraised value. I should add that a few mortgage insurers have experimented with programs that provide the kind of protection to borrowers that you are asking about, but they have never caught on. What is the best type of loan to take if I know I will be paying it off within two years? When your time horizon is very short, you want to minimize your upfront cost. The best way to do this is with a no-cost three-year or five-year ARM. A no-cost loan is one with an interest rate high enough to command a rebate from the lender (negative points) that will cover your settlement costs. Avoid interest-only or option A...
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