Most borrowers have a lot of questions in relation to mortgage insurance. What is mortgage insurance? How could you avoid mortgage insurance? What kinds of loan need mortgage insurance? This are commonly asked questions. Well, this is not bad though since this is one of the terms used for the fess you would be paying which is included in your monthly fees after getting the keys to your home.
There are 4 important things you should know about mortgage insurance:
Mortgage Insurance is for the benefit of the Lender
Mortgage insurance is required when you pay lesser than 20% in your down payment. Now this payment is done upfront and monthly. This is asked to ensure your mortgage, which means in case of default the mortgage insurance company would agree to pay the lender for any loss.
This is not collected for any loss on your part once there would be a default on you loan; this is to protect the lender for any loss they would encounter.
Mortgage Insurance Becomes a Requirement Depending on the Kind of Loan Applied For
For FHA loans, mortgage insurance is needed when the equity is less than 20 %, however for other sorts and types of loans no mortgage insurance is needed. This is applicable for conventional loans, VA loan and USDA loan. For conventional loan, once the mortgage goes beyond 80% of the equity, mortgage insurance is needed and for purchase, this requires a 20% down payment.
Lender Paid Mortgage Can Be an Alternative Option
A lender paid mortgage can be offered by your lender, this means you are not paying for an upfront payment and monthly insurance but your interest rate would be higher. Usually, the payment on these kinds of loan is much lower than both with Private mortgage Insurance or a no Mortgage insurance loan. Also, this could be very advantageous if you are planning to refinance you current mortgage after few years.
You will Stop Paying for a Mortgage Insurance at Some Point of Your Loan
Usually, if your down payment ranges only from 3.5 to 5 %, then you need to pay for mortgage insurance. However, in a certain point in your loan, you will reach the 20%, or your remaining balance would be less than 80%. By this time you can stop paying your monthly mortgage insurance payment.
Once you noted that your balance is less than 80% already, you can call your loan officer or directly to your lender about the information and have your mortgage insurance cancelled.
It is always advisable during the processing of your application to speak with certain terms offered by your lender about mortgage insurance for you to be able to save money. Lenders offer certain terms in paying your mortgage insurance, just be wise on choosing what to qualify for.