Mortgage insurance (MI) protects lenders against home owners defaulting on loans. It is typically required by a mortgage company on mortgages where the home buyer puts down less than 20% and is normally payable monthly. For price restrictive home buyers, this may make purchasing a property less affordable. Financed MI is a potential alternative. Below you will find information on financed mortgage insurance.
Information On Financed Mortgage Insurance
Financed MI enables a borrower to cover the insurance cost at closing and roll the cost into the principal of the loan. It is available on both fixed and adjustable rate programs. It is essential to understand the advantages and disadvantages of this solution.
Advantages of Financed MI
Financed MI eliminates the need for monthly premiums. The overall expense of the insurance is generally low when spread over the length of the loan. It can also offer the most tax savings as not all homeowners are allowed to use a tax deduction for monthly mortgage insurance costs.
Disadvantages of Financed MI
There are a couple of disadvantages to financing MI. Because the cost of MI is rolled into the principal of the loan, the borrower is beginning with a higher loan amount. Additionally, the total amount is due at closing so there is a greater up-front expense to obtaining the mortgage. If the loan is paid off in a few years, the cost of MI can be relatively higher than using the monthly option.
Evaluating MI Options
Financing MI can be helpful if you intend to hold on to a mortgage for a significant number of years and/or if you require a lower monthly payment. If you plan to refinance in a couple of years, it may be a better idea to pay the insurance monthly. This information on financed mortgage insurance is provided for reference only. To determine the most suitable option for your particular needs, speak with a mortgage professional.