Lender-Paid Mortgage Insurance is beneficial to Lenders as well as a tax savings for borrowers. To sum it up, it is simple. The lender pays the MI premium and charges a slightly higher interest rate. For many homebuyers, Lender-Paid Mortgage Insurance (LPMI) offers significant advantages over the more traditional borrower-paid MI or even other loan options. Here are the benefits:
No monthly MI premium
- No MI closing costs
- Lower monthly mortgage payment
- Potential for qualifying for a larger loan
- Potential for greater tax benefits
- Significant savings over the life of the loan
Lender paid mortgage insurance should be carefully looked at before obtaining. If the client plans on keeping the property for the life of the loan, is locked into a great fixed interest rate and never have any plan of refinancing that mortgage then it may be better to pay the PMI instead of the Lender paid mortgage insurance. With the lender paid mortgage insurance you are stuck with the increase to your interest rate for the life of the loan and with the PMI you are able to drop it at either 78% or 80% (depending on the lender and their guidelines) loan to value of the property. Therefore, it could end up costing more with the LPMI than it would with the regular PMI. However, most people sell or refinance within five years so the LPMI is a nice option for many people.
If simplicity is the clients goals, a LPMI loan might benefit you with eliminating the hassle of paying two loans. Consult with your mortgage consultant as to when the Mortgage Insurance can be waived.
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