What is Mortgage Insurance?
If you are considering buying or even refinancing a home this is a question you absolutely need to know the answer to. Lets start with the short answer. Mortgage Insurance is an insurance policy that a home buyer or homeowner must pay if they do not have at least 20% equity in their home. Mortgage Insurance protects the lender in case a homeowner defaults on their mortgage. Mortgage insurance does not do anything for the homeowner other than allow them to purchase a home with less than 20% down. Without it, this wold not be possible! This is a very general answer and is most certainly not a one size fits all explanation. Lets keep going.
Mortgage insurance is paid in a variety of ways depending upon the type of financing being used, a borrowers qualifications (credit, debt to income etc…) and in some cases a borrowers preference. Mortgage insurance may be paid in monthly installments, as a large one time up front premium, a combination of both or by increasing a borrower’s interest rate. To make a bit more sense out of all these different options check out this link for a basic mortgage insurance break down loan type by loan type – HERE.
Each of the different mortgage insurance payment options result in a different monthly payment and overall cost to the borrower. Sometimes the difference in monthly payment to the borrower can be hundreds of dollars a month. In addition, if the right mortgage insurance option is not utilized a borrower may miss out on the ability to receive a tax write off for their mortgage insurance.
Long story short, buyers need to make sure they have a loan officer that is a mortgage insurance expert to make sure they select the best possible overall mortgage and mortgage insurance plan. Please let me know how I can help.
By Jeremy House
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