Definition Of Financed Mortgage Insurance

Mortgage insurance (MI) protects lenders against borrowers defaulting on loans. It is generally required by a lender on mortgages with a small down payment and is usually due monthly. For price restrictive home buyers, monthly premiums for mortgage insurance may make buying a property less affordable. Financed MI is a alternative to monthly payments. Below you will find the definition of financed mortgage insurance.

Definition Of Financed Mortgage Insurance

Financed MI allows a home buyer to cover the insurance premium up-front and include the expense into the balance of the loan. It is an option on both fixed rate and adjustable rate loans. It is essential to weigh the pros and cons of this arrangement.

Advantages of Financed MI

Financed MI offers the benefit of no recurring premiums. The applicable amount of the insurance is usually low when applied to the length of the mortgage. It may also offer the most tax benefits as not all home buyers are allowed to use a tax deduction for monthly mortgage insurance.

Disadvantages of Financed MI

There are some cons to financing MI. Since the premium for MI is rolled into the principal of the mortgage, the borrower is beginning with a higher principal. Additionally, the total amount is being paid up-front so closing costs increase. If the mortgage is paid off early, the cost of MI can be effectively higher than using the monthly premium alternative.

Evaluating MI Alternatives

Financing MI can be beneficial if you plan to hold on to a mortgage for more than a couple of years and/or if you require a reduced monthly payment. If you know that you will pay off your loan quickly, you might be better off with monthly mortgage insurance costs. The above definition of financed mortgage insurance is offered as only a reference. To determine the most suitable option for your particular needs, consult with a mortgage officer.

About Scott Beard

Finding the right Realtor can be the difference between a happy, stress-free home buying or selling experience, and an unhappy, stressful experience. That’s why choosing the right Agent to begin with is key. I have helped hundreds upon hundreds of clients during my career and sold over $55 million in properties and look forward to putting my experience to work for you.
Contact me at any time. I look forward to hearing from you.

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