Mortgage insurance (MI) is a policy that protects mortgage companies against borrowers defaulting on mortgages. It is commonly mandated by a mortgage company on mortgages where the borrower puts down less than 20% and is usually paid monthly. For buyers trying to reduce monthly payments, this can make buying a home less affordable. Financed mortgage insurance is a possible solution. Below you will find an explanation of single financed premium mortgage insurance.
Explanation Of Single Financed Premium Mortgage Insurance
Financed mortgage insurance allows a home buyer to pay the insurance cost up-front and essentially roll the cost into the balance of the home loan. It is an option on both fixed and adjustable rate loans. Borrowers can pay a one-time lump sum payment, or if they don’t have sufficient funds at closing, can finance their MI into the loan amount. This attractive option offers a low monthly payment and reduces the amount necessary at closing. Sinfle Finnanced Premium MI is best for borrowers who want to minimize their monthly payment. It is essential to weigh the pros and cons of this arrangement.
Advantages of Financed Mortgage Insurance
Financed mortgage insurance offers the benefit of no recurring premiums. The overall cost of the insurance is somewhat low when spread over the life of the loan. It may also offer better tax savings as not all home buyers are allowed to claim a tax deduction for annual mortgage insurance costs. Borrowers may qualify for a larger loan because of the lower payment. This is usually the lowest MI cost option for most consumers.
Downside of Financed Mortgage Insurance
There are a couple of disadvantages to financing Mortgage Insurance. Since the cost of mortgage insurance is included in the balance of the mortgage, the loan starts at a higher figure. Additionally, the total amount is charged at closing so there is a higher initial expense to obtaining the mortgage. If the loan is paid off early, the cost of mortgage insurance may be relatively higher than using the monthly premium alternative.
Comparing Mortgage Insurance Alternatives
Financing mortgage insurance can be helpful if you plan to keep a loan for a significant time frame and/or if you must have a lower monthly payment. If you plan to pay off your loan in a couple of years, you might be better off with monthly mortgage insurance costs. This explanation of financed mortgage insurance is offered as only a reference. To identify the best option for your specific situation, speak with a mortgage consultant. This information was prepared by Christopher Graves at Emery Federal Credit Union. Contact Christopher at 978-376-5389 or firstname.lastname@example.org for additional information on and other steps in the home buying process.