Posts tagged Mortgage Insurance
The Ultimate Guide to Mortgage Insurance

Mortgage Insurance is a kind of insurance policy. It compensates an investor or lender for losses in the event of borrower default on a mortgage loan. In other words, mortgage insurance protects the lender if you fall behind on your payments.

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How do you calculate mortgage insurance?

Mortgage insurance is a type of insurance policy that covers the lender in case the borrower defaults on the loan. It is usually required in the form of private mortgage insurance (PMI) when borrowers don’t make a down payment of at least 20% on most conventional loans. For FHA loans, it’s called a mandatory mortgage insurance premium (MIP).  If you fit into either of those categories, then mortgage insurance is something you’ll have to deal with.

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Is It Worth It to Take on a Loan with PMI?

Taking on a loan with PMI can often increase the amount of options you have, meaning that you may be able to take on a larger or riskier loan than you would regularly qualify for. Often, this means you can buy a home earlier, and start building up its equity without having to save up the full 20% of the home’s purchase price before doing so.

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What is Private Mortgage Insurance (PMI)?

If you take out a conventional mortgage loan with a downpayment of less than 20% of the home’s purchase price, you may be required to purchase private mortgage insurance (PMI). Private mortgage insurance is a type of coverage that protects the lender in the event that the borrower defaults on a loan.

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Is Mortgage Insurance Tax-Deductible?

In 2006 to 2016 homeowners were in fact able to deduct mortgage insurance premiums per the Protecting Americans from Tax Hikes (PATH) Act. Congress must directly approve this deduction every year following 2016.

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Definition of a Mortgage Insurance Premium (MIP)

What is a mortgage insurance premium? A mortgage insurance premium (MIP) is an insurance plan implemented in FHA loans regardless of the down payment amount you put down on the loan. The MIP is paid directly to the Federal Housing Administration (FHA) instead of a private company as Private Mortgage Insurance (PMI) is.

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Is Private Mortgage Insurance (PMI) Required?

Lenders want to know they'll get their money back when they lend it out. In the event that a borrower can’t produce at least 20% down for a traditional loan, lenders will impose mortgage insurance on the borrower in order to protect the lender in default. Lenders turn to private insurance providers for this, hence the name -- Private Mortgage Insurance (PMI). 

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