Mortgage insurance (MI) is a policy that protects lenders against home owners defaulting on mortgages. It is typically mandated by a lender on mortgages with a down payment of less than 20% of the purchase price and is normally payable monthly. For buyers with tight budgets, this can create a hardship. Financed mortgage insurance is a potential solution. Below you will find the advantages and disadvantages of financed mortgage insurance.
Information On Financed Mortgage Insurance
Financed mortgage insurance enables a home buyer to pay the insurance cost up-front and basically include the cost into the principal of the loan. It is available on both fixed rate and adjustable rate loans. It is essential to understand the advantages and disadvantages of this solution.
Benefits of Financed Mortgage Insurance
Financed mortgage insurance offers the benefit of no recurring premiums. The overall amount of the insurance is generally low when spread over the length of the mortgage. It can also include the most tax incentives as not all home buyers can use a tax deduction for monthly mortgage insurance.
Downside of Financed Mortgage Insurance
There are a couple of downsides to financing Mortgage Insurance. Because the premium for mortgage insurance is rolled into the balance of the loan, the mortgage starts at a higher figure. Additionally, the total amount is being paid at closing so closing costs are higher. If the loan is paid off in a few years, the cost of mortgage insurance may be relatively more than using the monthly alternative.
Assessing Mortgage Insurance Options
Financing mortgage insurance can be beneficial if you intend to hold on to a loan for more than a couple of years and/or if you must have a lower monthly payment. If you know that you will refinance within just a few years, you may be better off with monthly mortgage insurance premiums. This advantages and disadvantages of financed mortgage insurance is provided for reference only. To identify the most suitable option for your specific needs, contact a mortgage consultant.