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Explanation Of Financed Mortgage Insurance

Explanation Of Financed Mortgage Insurance published by Sonny Solomon at The Keyes Company

November 4, 2013 //  by Sonny Solomon

Mortgage insurance (MI) protects lenders in case a home owner fails to pay a home loan. It is commonly required by a lender on loans with a down payment that is less than 20% of the purchase price and is usually due in monthly installments. For price sensitive home buyers, monthly charges for mortgage insurance may create a hardship. Financed MI is a potential alternative. In this blog you will find an explanation of financed mortgage insurance.

Explanation Of Financed Mortgage Insurance

Financed MI enables a home buyer to cover the insurance cost up-front and roll the expense into the principal of the mortgage. It is offered on both fixed and adjustable rate programs. It is important to understand the advantages and disadvantages of this solution.

Benefits of Financed MI

Financed MI reduces the total monthly expense. The overall expense of the insurance is somewhat low when spread over the life of the loan. It may also include the most tax incentives as not all homeowners may claim a tax deduction for annual mortgage insurance costs.

Downside of Financed MI

There are a couple of downsides to financing MI. Because the cost of MI is rolled into the balance of the loan, the borrower is beginning with a higher principal. Additionally, the total premium is charged up-front so there is a higher initial cost to obtaining the loan. If the mortgage is paid off early, the cost of MI can be effectively higher than the monthly alternative.

Evaluating MI Alternatives

Financing MI can be beneficial if you intend to hold on to a mortgage for more than a few years and/or if you need a lower monthly payment. If you plan to pay off your loan within just a few years, it may be more cost effective to pay the insurance monthly. This explanation of financed mortgage insurance is provided as only a reference. To identify the most suitable option for your particular situation, contact a mortgage officer.

Category: Mortgage InfoTag: MI, mortgages

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