Definition Of Financed Mortgage Insurance

Mortgage insurance (MI) is a policy that protects lenders against borrowers defaulting on loans. It is generally required by a mortgage company on loans with a down payment that is less than 20% of the purchase price and is usually charged in monthly installments. For price restrictive buyers, this may create a hardship. Financed MI is a alternative to monthly premiums. In this blog you will find the definition of financed mortgage insurance.

Definition Of Financed Mortgage Insurance

Financed MI enables a home buyer to cover the insurance cost up-front and include the cost into the balance of the home loan. It is offered on both fixed and adjustable rate programs. It is essential to weigh the advantages and disadvantages of this arrangement.

Benefits of Financed MI

Financed MI provides the benefit of no recurring premiums. The overall expense of the insurance is usually low when spread over the life of the loan. It can also provide better tax savings as not all home buyers may use a tax deduction for annual mortgage insurance costs.

Downside of Financed MI

There are some disadvantages to financing MI. Since the cost of MI is included in the balance of the loan, the loan starts at a higher amount. Additionally, the total amount is paid up-front so closing costs are higher. If the loan is paid off early, the cost of MI will be effectively more than using the monthly alternative.

Comparing MI Options

Financing MI can be helpful if you want to keep a loan for more than a couple of years and/or if you require a lower monthly payment. If you know that you will pay your loan off in a couple of years, it may be more cost effective to pay the insurance monthly. This definition of financed mortgage insurance is offered for reference only. To decide on the most suitable option for your specific situation, speak with a mortgage consultant.