Mortgage insurance is a policy that is placed to protect title holders or the lender if the homeowner happens to pass away, starts missing payments, or just cannot meet the requirements of the mortgage contract. This insurance can also be referred to as; mortgage title insurance, mortgage life insurance, or even private mortgage insurance (PMI).
PMI may also be referred to as “lenders mortgage insurance” if the lender happens to pay off the premium and not the homeowner. Lenders will often do this in exchange for a higher fee structure and or interest rate on the mortgage. Since the lender paid the premium, the premium is passed along to the homeowners monthly mortgage payment.
If a homeowners down payment on the home is less than twenty percent of the loans original balance, you will be required to purchase mortgage insurance.
However, most borrowers cannot come up with enough money to cover a twenty percent down payment on the home. So because of this a financing technique was developed called 80-10-10. This refers to the first mortgage remaining at eighty percent of the homes value, ten percent for a down payment instead of twenty, and with the remaining balance creating a second mortgage lien. The second lien tends to have a much higher interest rate than the first loan. Mortgage insurance is no longer needed once the homeowners equity becomes at least twenty percent of the loan.
There is also another technique typically known as 80-15-5 were the borrower is only able to come up with a five percent down payment.
Mortgage insurance can pretty much benefit any borrower and will allow them to purchase their dream home more quickly, and also increase your buying power dramatically.