Mortgage Protection Insurance Benefits

If you provide a down payment of less than 20 percent when you buy your next home, your lender will require that you pay mortgage protection insurance. Depending on the type of loan that you take out, you may be asked to make a lump sum payment when you get the loan and a monthly premium payment until you reach a loan-to-value of 80 percent. How much will all of this cost?

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How Large Is the Down Payment?

Typically, mortgage insurance is priced on a sliding scale. Therefore, the cost of mortgage protection insurance is going to be more if you have a 3.5 percent down payment as opposed to a 19 percent down payment. The good news for borrowers is that lenders may be willing to completely eliminate mortgage insurance for those buyers who put close to 20 percent down and have good credit.

What Type of Loan Do You Have?

If you have a Federal Housing Administration loan, you are going to pay both an upfront PMI premium as well as make monthly mortgage protection payments. This will typically cost about 1.5 percent of the total purchase price of the house. The monthly PMI payment will be anywhere from .5 percent to 1.5 percent of your monthly payment. Conventional loans do not require you to make an upfront payment in most cases, which means you’ll only pay the monthly premium.

Do You Plan on Refinancing the Loan?

Those who plan on refinancing their loan may be able to get a refund for any upfront premiums that they have paid. It may also be possible to get the monthly premium waived when you refinance your loan if the loan-to-value on your property is 80 percent or less. In most cases, you’ll need to refinance the loan within three years to get a credit.

Mortgage protection is designed to help lenders protect themselves from financial loss in the event of a loan default. The good news for borrowers is that there are ways to limit or even eliminate this cost over time, which could save borrowers thousands over the life of a 30-year loan.

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