What is better, a Single Premium Mortgage Insurance or Monthly?

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
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San Diego, California
www.loansreduced.com
Something that I haven't seen often has come up quite a bit recently and that is paying the mortgage insurance in full at the beginning of the transaction to keep the payment more affordable.

The questions become, when does it make sense to do that?
If you're planning on buying and holding, single premium is a great direction to take
Planning on selling in the next few years? Go the monthly, borrower paid direction
Interest rates are continuing to rise, if you have that extra mortgage insurance payment it may make it unaffordable

Here's an example of what you should to do determine the best direction:
MI Provider - Essent Rate Finder - Click this link and you can input the details of the loan and find out what a single premium or monthly payment would be.

Scenario:
760 FICO, SFR, Owner Occupied Purchase, 95% loan to value, loan amount: 417,000.00

Borrower Paid Monthly: 142.48/mo extra
Single Premium: 7089.00

7089 divided by 142.48 = 49.75 months or 4.14 years before you recover from paying the full premium.

Here's what you need to ask yourself:
Are you going to be in the home longer than 4 years?
Are you planning on refinancing in the next 4 years (with interest rates rising I would say no)?
Are you planning on selling the home in the next 4 years?

Ultimately you want to be in the home longer than 4 years and not refinance in that period of time otherwise paying the single premium would not make sense. I thought about the direction I personally was going to take with my own home purchase and I decided to take the single premium. Being an expert in the industry I feel that interest rates are only going to continue to rise. I would prefer to take advantage of the low rate with no MI making the payment more affordable monthly.

Feel free to reach out to me to explain the differences and give you a quote based on your own scenario for both single premium and monthly mortgage insurance.
 
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