Mortgage insurance (MI) protects lenders against home owners defaulting on loans. It is generally required by a lender on loans where the borrower puts down less than 20% and is normally due monthly. For price restrictive home buyers, monthly premiums for MI may create a hardship. Financed MI is a alternative to monthly payments. In this blog you will find information on financed mortgage insurance.
Information On Financed Mortgage Insurance
Financed MI enables a borrower to cover the insurance cost up-front and basically include the cost into the balance of the home loan. It is available on both fixed and adjustable rate loans. It is helpful to weigh the advantages and disadvantages of this solution.
Benefits of Financed MI
Financed MI eliminates the need for recurring premiums. The overall cost of the insurance is somewhat low when applied to the life of the mortgage. It can also offer the most tax incentives as not all home buyers are allowed to use a tax deduction for annual mortgage insurance costs.
Downside of Financed MI
There are a few disadvantages to financing MI. Since the premium for MI is included in the balance of the mortgage, the borrower is starting off with a larger loan amount. Furthermore, the full amount is paid at closing so there is a higher initial cost to obtaining the mortgage. If the mortgage is paid off in a few years, the cost of MI may be relatively more than using the monthly payment option.
Comparing MI Options
Financing MI can be helpful if you want to keep a mortgage for more than a couple of years and/or if you require a lower monthly payment. If you know that you will pay your loan off quickly, you may be better off with monthly mortgage insurance premiums. This information on financed mortgage insurance is offered as only a reference. To determine the most suitable option for your particular situation, speak with a mortgage professional.