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Line of Credit Insurance

Many borrowers will be required or encouraged to get line of credit insurance when the get a line of credit.

Line credit insurance will reimburse the lender if you default on the line of credit. It will not pay you back it will pay the lender back.

Line of credit insurance is a really good deal for lenders so many of them require it of all borrowers. Many home equity line of credit and real estate lines of credit include line of credit insurance. Line of credit insurance is a good deal for the lender not for you.

Line of Credit Insurance Can Increase Costs

Like mortgage insurance line of credit insurance raises the cost of borrowing money. On a home equity line of credit line of credit insurance can raise the cost of borrowing by 5% or more.

You will be charged for line of credit insurance every month so the cost of it can add up quickly. A borrower can end up paying several hundred extra dollars on a line of credit because of insurance.

The worst aspect of line of credit insurance is that a lender may not tell you that you’re paying for it. They may just tack it on and you’ll start paying once you get the line of credit.

Read the Fine Print

A borrower should always read the fine print on a line of credit agreement to see if they are being required to get line of credit insurance and pay for it. Many lenders will hide line of credit insurance fee deep in the fine print of the agreement.

Read the agreement carefully and question any line of credit insurance charges. Some lenders may forgo it if you ask them to. Lenders who are anxious for your business maybe willing to waive line of credit insurance before you sign the agreement. Read the agreement before you sign it so you won’t get stuck with line of credit insurance.

Ask If Line of Credit Insurance can End

Even if you are required to get line of credit insurance when you open a line of credit, you might be able to cancel it later on. Some lenders, especially home equity lenders, will stop requiring line of credit insurance once you have paid off a substantial amount of the credit balance usually around 20%

Unfortunately lenders won’t stop the line of credit insurance if you don’t ask them to. If you have paid of a substantial amount of your line of credit insurance you should ask about ending line of credit insurance.

Eliminating line of credit insurance can lower the cost of a line of credit.  So always ask if you can get rid of line of credit insurance.