The Hocus Pocus of Mortgage Insurance

MIP or PMI is one of those subjects, which isn't usually addressed until buyers get into the nitty-gritty of purchasing a home.  Respectively MIP (Mortgage Insurance Premium) or PMI (Private Mortgage Insurance) is insurance, which protects the mortgage lender against any loss they may occur if a mortgage goes into foreclosure.  It is most often seen when borrowers place less than 20% down payment on a conventional loan.

These insurance premiums vary according to the loan-to-value ratio.  Premiums can be collected monthly as part of mortgage payments, like fire or homeowners insurance premiums.  Sometimes they can be collected at escrow closing.

If the loan-to-value ratio does not exceed 95% with the amount of the one-time mortgage insurance added, the mortgage insurance can be financed.  FHA loans have a requirement of mortgage insurance, which is financed in the loan, and paid monthly.

In many cases, homeowners with a conventional loans, that have been reduced to 75% or 80% of the property's appraised value, can request mortgage insurance be cancelled.  However, approval or denial of the mortgage insurance waiver request is determined by the individual requirements of each investor. 

New Developments for FHA Mortgage Insurance Premiums -

Effective on FHA loans originated after October 4^th 2010 - The Upfront Mortgage Insurance Premium is 1.00%, which is a decrease from 1.5%.  This applies to regular purchases and refinance products.

FHA's monthly mortgage insurance payments will be automatically terminated when these conditions occur:

• For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.
  
  
• For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.
  
  
• Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums.

For more information about FHA Mortgage Insurance Premiums, you can visit: "FHA Mortgage Insurance."
For any conventional Private Mortgage Insurance questions, it is advisable to consult with your lender.