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Mortgage & Insurance Advice

Mortgage Insurance Benefits

What is Mortgage Insurance (MIP)? Mortgage insurance (MIP) is an important type of insurance that a potential borrower may need to purchase as part of a standard mortgage loan. Mortgage insurance protects the lender in the event that the borrower defaults on a home loan by paying the costs of any defaulted mortgage payment that exceeds the amount insured. Private mortgage insurance is usually purchased by a mortgage lender when the borrower makes an advance down payment of at least 20% of the home’s total purchase price. In addition to the mortgage insurance premium being paid by the borrower, the interest on the MIP will also be added to the borrower’s mortgage payment each month until the full amount of MIP has been paid off.


When a buyer is seeking a mortgage insurance quote, he or she must first understand the difference between an “intermediate” lender and “direct” lender. An intermediary lender is one who does not require a direct referral from a specific lender; instead, he or she works with multiple lenders on a regular basis. Because of this fact, their list of lenders often times includes several banks or credit unions as well as other third-party financial institutions.


Private mortgage insurance protects a lender from paying out too much money in the event that the borrower defaults on a home loan. The insurance pays these costs even if the borrower has made payments in the past but has fallen behind because of new circumstances beyond his or her control. Private insurance is different from traditional insurance in that it does not require the borrower to make a specific payment each month in order to receive the coverage. Instead, the insurance takes effect only if the borrower misses a payment. Private mortgage insurance protects lenders in situations where they may be required to pay out a significant amount of money to a third-party in order to mitigate some of the risk involved in the lending process.


Another thing to note is that a conventional loan will not provide any coverage on a home loan for purchases that take place after the purchase date. One exception to this is that pre-paid home equity will suffice. A pre-paid home equity is a home loan that is paid in full at purchase and therefore not subject to the borrower’s rights of acceleration. Although pre-paid home equity may be the most convenient way to finance a home purchase, it is not without its drawbacks. A pre-paid home equity plan allows borrowers to assume a greater risk by paying less money down and financing the home at a higher interest rate.


The benefits of private mortgage insurance (pmi) are sometimes offset by the benefits of taking out a conventional loan and are especially appealing to borrowers who have a good but not perfect credit rating. Private mortgage insurance also allows borrowers who own their home outright to obtain a lower interest rate than someone who would qualify for a conventional loan. However, those with less-than-perfect credit ratings may also be able to qualify for PMI even if they do not own their home. If you are considering taking out a mortgage in the future, this type of loan could benefit you in the long run. The cost of PMI premiums is based on your credit rating and does not necessarily reflect the rates offered by other mortgage lenders.


How much mortgage insurance costs is dependent upon your current premium level. You can often lower the cost of premiums by requesting a lower initial rate. Other factors such as the location of your home and credit history are also taken into account. If you have recently made a few late payments or have otherwise not been a good borrower, your monthly premiums can increase. You can learn more about your mortgage insurance options, including common mistakes to avoid by registering for a free mortgage guidebook.