Advantages And Disadvantages Of Financed Mortgage Insurance

Mortgage insurance (MI) is a policy that protects mortgage companies in case a home owner defaults on a home loan. It is commonly required by a lender on loans with a down payment that is less than 20% of the sales price and is normally charged in monthly premiums. For buyers trying to limit monthly payments, monthly premiums for MI can make purchasing a property less affordable. Financed mortgage insurance is a potential alternative. In this article you will find the advantages and disadvantages of financed mortgage insurance.

Explanation Of Financed Mortgage Insurance

Financed mortgage insurance permits a borrower to pay the insurance cost at closing and essentially roll the cost into the principal of the home loan. It is available on both fixed rate and adjustable rate loans. It is important to weigh the pros and cons of this solution.

Advantages of Financed Mortgage Insurance

Financed mortgage insurance lowers the total monthly mortgage payments. The applicable amount of the insurance is relatively low when spread over the length of the loan. It can also provide better tax savings as not all homeowners are allowed to claim a tax deduction for annual mortgage insurance premiums.

Downside of Financed Mortgage Insurance

There are a couple of cons to financing Mortgage Insurance. Since the premium for mortgage insurance is rolled into the balance of the loan, the loan begins at a higher amount. Additionally, the total premium is paid at closing so there is a higher initial cost to obtaining the mortgage. If the loan is paid off early, the cost of mortgage insurance may be relatively more than the monthly option.

Evaluating Mortgage Insurance Alternatives

Financing mortgage insurance can be beneficial if you want to keep a mortgage for more than a few years and/or if you need a reduced monthly payment. If you plan to pay your loan off in a couple of years, it might be more cost effective to pay the insurance monthly. This advantages and disadvantages of financed mortgage insurance is provided as only a reference. To decide on the best option for your specific situation, speak with a mortgage consultant.

About Mini Major

Mini views the purchase or sale of a home as a major life transition that usually evokes a wide array of challenges and emotions She brings her strong analytical, communication, and mediation skills to that process. For buyers, she helps to assess realistic goals and maps out a facilitation strategy that is uniquely designed to meet their individual styles with limited stress. For sellers, she provides honest, factual information necessary to set the right price and, together with the extraordinary resources of the Bean Group, provides state-of-the art marketing materials to present that property with appeal to the most appropriate potential buyers.

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