Mortgage Insurance - what's that all about?
Mortgage Insurance (MI) is typically required to purchase a home with a Loan-To-Value (LTV) ratio greater than 80%. In other words, MI is required when a borrower’s down payment or equity position is less than 20%. MI provides lenders with protection against loss in case the borrower defaults on the loan.
MI can be paid in a few different ways:
- Up front at closing—paid by the lender
- Up front at closing—paid by the borrower
- Included in your monthly mortgage payment
- A combination of these—a portion can be paid up front at closing and the rest of paid as a part of the mortgage payment
There are different types of MI, each of which comes with benefits and drawbacks. Be sure to talk to your Loan Officer to see which type of MI will work best for you.
Lender Paid (LPMI)
LPMI is paid for by your lender.
- This option reduces your monthly mortgage payments, but you will have a higher interest rate.
- It cannot be cancelled and will be included in your mortgage payment for the life of the loan. The only way to remove it is to either refinance your loan once you have reached an LTV of 80% or pay off your mortgage completely.
Borrower Paid (BPMI)
BPMI is paid by you, the borrower.
- This option results in higher monthly payments at the inception of the loan, as MI funds are collected in your escrow account. However, once you have reached 20% equity in your home, you may be eligible to cancel the BPMI. Eligibility questions should be directed to your loan servicer, as specific conditions may apply.
- Once BPMI is removed from your loan, your monthly mortgage payment will be reduced.