Mortgage insurance (MI) protects lenders against home owners defaulting on loans. It is typically required by a mortgage company on loans with a low down payment and is usually due in monthly installments. For buyers trying to reduce their payments, monthly charges for mortgage insurance may result in a hardship. Financed mortgage insurance is a potential solution. In this article you will find the advantages and disadvantages of financed mortgage insurance.
Overview Of Financed Mortgage Insurance
Financed mortgage insurance allows a borrower to pay the insurance cost up-front and essentially roll the cost into the principal of the home loan. It is available on both fixed rate and adjustable rate loans. It is essential to understand the advantages and disadvantages of this arrangement.
Advantages of Financed Mortgage Insurance
Financed mortgage insurance lowers the total monthly mortgage payments. The applicable amount of the insurance is relatively low when applied to the life of the loan. It can also include the most tax benefits as not all home buyers may use a tax deduction for annual mortgage insurance costs.
Disadvantages of Financed Mortgage Insurance
There are a few cons to financing Mortgage Insurance. Since the premium for mortgage insurance is included in the balance of the mortgage, the borrower is starting off with a higher principal. Additionally, the total price is due up-front so closing costs are higher. If the loan is paid off early, the cost of mortgage insurance will be relatively more than the monthly payment alternative.
Assessing Mortgage Insurance Options
Financing mortgage insurance can be beneficial if you plan to hold on to a loan for a significant time period and/or if you require a lower monthly payment. If you plan to pay off your loan in a couple of years, it might be more cost effective to pay the insurance monthly. This advantages and disadvantages of financed mortgage insurance is provided for reference only. To identify the most suitable option for your particular situation, speak with a loan officer.