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What you need to know about mortgage insurance

What you need to know about mortgage insurance header size

 

The first concerns that many people have with mortgage insurance is “Do I need it?” and “How can I get rid of it?” This article will teach you what you need to know about mortgage insurance, such as types of mortgages that require mortgage insurance and how to eliminate the expense as soon as possible.

Many mortgage loans require mortgage insurance, at least for a period of time. These plans can cost between 0.5% to 1% of the entire loan amount on an annual basis. To put that in perspective, if you have a $100,000 loan, mortgage insurance could cost you $1,000 per year! For that reason, choosing the best type of mortgage insurance is an important part of buying a home.

What types of loans require mortgage insurance?

Conventional loans with less than 20% down payment require private mortgage insurance (PMI). The premium will range based on down payment and credit score, similar to the interest rate of your mortgage. Rates are generally lower than that of FHA loans, depending on credit score. Most PMI policies do not require an upfront payment.

FHA loans also require mortgage insurance. This will be charged back as an upfront mortgage insurance premium (UFMIP) paid at the time of closing, and also as an annual MIP, which is paid in monthly installments and recalculated each year. The UFMIP premium can be added to the base loan amount and financed in with the loan. It has the same premium regardless of the mortgage cost but will cost more if your down payment is less than 5%.

The current upfront payment for mortgage insurance on an FHA loan is 1.75% of the loan amount. The current monthly payment for mortgage insurance is between .80% and 1.05% of the loan amount, divided by 12. The monthly payment is recalculated annually, so it will decrease over time.

VA (Veteran’s Affairs) loans have a VA Loan Guarantee fee that replaces the need for mortgage insurance. This upfront closing fee can be added to the base loan amount and financed in with the loan. Remember, VA Loans are only available to active military and veterans, as well as their spouses.

Types of mortgage insurance

There are four common types of payment plans for mortgage insurance:

Borrower paid private mortgage insurance allows the borrower to pay the mortgage insurance premium monthly. This is the most common type of mortgage insurance.

Single premium private mortgage insurance allows the borrower to pay the premium in a single lump sum at the time of closing. This could save you money over time because the percentage paid can be shy of the sum of lifetime payments on the monthly premium.

Split premium private mortgage insurance allows the borrower to pay a portion of the premium at closing, and then make a monthly premium payment afterward. The benefit of which is that the monthly payment is greatly reduced, however, this type of mortgage payment plan is not very common.

Lender paid PMI allows the mortgage lender to assume to cost of the mortgage insurance at closing, which the borrower will “repay” over time in the form of a higher interest rate. This increase is usually one-quarter to half a percentage point higher.

Discontinuing mortgage insurance

Mortgage insurance for conventional loans can be discontinued once the loan repayment has reached 22% so that the borrower owns 22% equity in the home. The remaining 78% of the loan can then be repaid without insurance.

Your mortgage lender may also approve discontinuation of mortgage insurance if you reach an agreed-upon repayment amount, have good equity, and are consistent with payments. However, this is at the lender’s discretion.

 

What you need to know about mortgage insurance

The first concerns that many people have with mortgage insurance is “Do I need it?” and “How can I get rid of it?” This article will teach you what you need to know about mortgage insurance, such as types of mortgages that require mortgage insurance and how to eliminate the expense as soon as possible.


Many mortgage loans require mortgage insurance, at least for a period of time. These plans can cost between 0.5% to 1% of the entire loan amount on an annual basis. To put that in perspective, if you have a $100,000 loan, mortgage insurance could cost you $1,000 per year! For that reason, choosing the best type of mortgage insurance is an important part of buying a home.


What types of loans require mortgage insurance?

Conventional loans with less than 20% down payment require private mortgage insurance (PMI). The premium will range based on down payment and credit score, similar to the interest rate of your mortgage. Rates are generally lower than that of FHA loans, depending on credit score. Most PMI policies do not require an upfront payment.


FHA loans also require mortgage insurance. This will be charged back as an upfront mortgage insurance premium (UFMIP) paid at the time of closing, and also as an annual MIP, which is paid in monthly installments and recalculated each year. The UFMIP premium can be added to the base loan amount and financed in with the loan. It has the same premium regardless of the mortgage cost, but will cost more if your down payment is less than 5%.


The current upfront payment for mortgage insurance on an FHA loan is 1.75% of the loan amount. The current monthly payment for mortgage insurance is between .80% and 1.05% of the loan amount, divided by 12. The monthly payment is recalculated annually, so it will decrease over time.


VA (Veteran’s Affairs) loans have a VA Loan Guarantee fee that replaces the need for mortgage insurance. This upfront closing fee can be added to the base loan amount and financed in with the loan. Remember, VA Loans are only available to active military and veterans, as well as their spouses.


Types of mortgage insurance

There are four common types of payment plans for mortgage insurance:


Borrower paid private mortgage insurance allows the borrower to pay the mortgage insurance premium monthly. This is the most common type of mortgage insurance.


Single premium private mortgage insurance allows the borrower to pay the premium in a single lump sum at the time of closing. This could save you money over time, because the percentage paid can be shy of the sum of lifetime payments on the monthly premium.


Split premium private mortgage insurance allows the borrower to pay a portion of the premium at closing, and then make a monthly premium payment afterwards. The benefit of which is that the monthly payment is greatly reduced, however, this type of mortgage payment plan is not very common.


Lender paid PMI allows the mortgage lender to assume to cost of the mortgage insurance at closing, which the borrower will “repay” over time in the form of a higher interest rate. This increase is usually one-quarter to half a percentage point higher.

Discontinuing mortgage insurance

Mortgage insurance for conventional loans can be discontinued once the loan repayment has reached 22% so that the borrower owns 22% equity in the home. The remaining 78% of the loan can then be repaid without insurance.


Your mortgage lender may also approve discontinuation of mortgage insurance if you reach an agreed-upon repayment amount, have good equity, and are consistent with payments. However, this is at the lender’s discretion.




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