Mortgage Insurance

Mortgage insurance is a type of insurance that protects lenders from losses if a borrower defaults on their mortgage payments. It is typically required by lenders for borrowers with a down payment of less than 20% of the purchase price of the home.

There are two main types of mortgage insurance: private mortgage insurance (PMI) and government-sponsored mortgage insurance (FHA). PMI is typically offered by private insurers, while FHA insurance is offered by the Federal Housing Administration (FHA).

The cost of mortgage insurance varies depending on the type of insurance, the borrower's credit score, and the loan-to-value ratio (LTV). LTV is the ratio of the loan amount to the appraised value of the home. The higher the LTV, the higher the cost of mortgage insurance.

Mortgage insurance can be a significant expense, so it is important to understand how it works before you take out a mortgage. If you have a down payment of 20% or more, you may be able to avoid mortgage insurance altogether.

Here are some additional details about mortgage insurance:

• PMI is typically required for loans with an LTV of greater than 80%.
• FHA insurance is typically required for loans with an LTV of greater than 97%.
• The cost of PMI typically decreases as the borrower's equity in the home increases.
• FHA insurance premiums are fixed for the life of the loan.
• PMI can be canceled once the borrower has reached 20% equity in the home.
• FHA insurance can be canceled once the loan balance is reduced to 78% of the appraised value of the home.

Mortgage insurance can be a helpful way to protect lenders from losses, but it is important to understand the cost and benefits before you decide whether to purchase it.