Many prospective homebuyers often ask us what mortgage insurance is and how it works. Mortgage insurance is imposed when less than 20% is paid toward the down payment on a home loan or a refinance.
Example:
You are purchasing a single-family home for $250,000, with 10% down payment. It will be your primary residence and you have excellent credit. Let’s assume you are applying for a 30-year fixed mortgage at 4.5%. The monthly principal and interest payment on a $225,000 loan is $1,140.04. Here are a couple scenarios:
1. Borrower paid mortgage insurance: this is where the borrower pays the mortgage insurance monthly with his mortgage payment. The borrower would pay $56.25 per month in addition to his principal and interest payment.
2. Lender paid mortgage insurance: this is where the lender pays the mortgage insurance by increasing the rate. In this example, the rate would be 4.875%, thereby increasing the monthly principal and interest payment to $1,190.72.
As you can see, the increase in the monthly payment on the lender paid mortgage insurance is almost the same as the amount of the borrower paid mortgage insurance. The difference is that mortgage insurance can be removed when you pay it monthly, however it stays for the life of the loan if it is lender paid. In this example, it may be better to go with the borrower paid mortgage insurance. However, each scenario is different.
Contact us and we can help you decide how to finance mortgage insurance. We offer a variety of products and services, ask us how we can assist you today. We work for you, not the lender.
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