Mortgage Insurance Types

Mortgage insurance is a profitable concept introduced to protect the interest of lender from the risk of default on loan by the borrower in case of death or when the borrower could not stick to the loan repayment obligations. It also allows buyers who cannot make a significant down payment to obtain mortgage financing at affordable rates. Say for example - If you purchase a home and put down less than 20%, your lender will probably minimize its risk by requiring you to buy insurance from a PMI company prior to signing off on the loan.
The cost one pays for PMI varies depending on the size of the down payment and loan, but typically runs about 0.5 to 1% of the loan.

There are three different types of private mortgage insurance -

  • Single Premium PMI - it is the type of PMI where you pay the MI premium in the simple lump sum and doesn't have to worry about the monthly MI payments. The single premium lump sum can be paid at the time of closing or financed in  the mortgage.
  • Lender Paid PMI - With Lender Paid MI, the cost of the PMI is included in the mortgage interest rate for the life of the loan. This can make a lower monthly mortgage payment, however here you may end up paying more in interest over the life of the loan. Also, you cannot cancel LPMI because it is a permanent part of the loan.
  • Borrower Paid PMI - If you have a monthly PMI, you make a premium payment every month until your PMI is either terminated. It can be canceled at your request when your equity in the home reaches 20% of the purchase price or appraised value or when you reach the midpoint of the loan period.  

Mortgage insurance offers a variety of payment options for many types of mortgage loans. Your lender can help you choose the best MI plan that suits your loan type, financial goals, and budget. The lender obtains mortgage insurance by applying to the MI company and providing all the necessary information. As a borrower, you provide nothing extra and there are no additional forms for you to complete or fees to apply for mortgage insurance coverage.