How Much Is Mortgage Insurance and How Does It Work?
Hey readers,
Are you in the market for a home loan? If so, you’ve probably come across the term "mortgage insurance." In this article, we’ll delve into the ins and outs of mortgage insurance, answering the burning question: how much does mortgage insurance cost?
What Is Mortgage Insurance?
Mortgage insurance is a type of insurance that protects the lender if the borrower defaults on their mortgage. In other words, it ensures that the lender will get their money back even if you can’t repay your loan.
When Is Mortgage Insurance Required?
Mortgage insurance is typically required for loans where the borrower makes a down payment of less than 20% of the home’s purchase price. This is because lenders consider borrowers with low down payments to be a higher risk.
How Much Is Mortgage Insurance?
The cost of mortgage insurance varies depending on several factors, including:
- The size of your loan: The larger the loan, the higher the monthly mortgage insurance premium.
- Your down payment: The lower your down payment, the higher the mortgage insurance premium.
- Your credit score: A higher credit score can qualify you for a lower mortgage insurance premium.
- The type of loan: Mortgage insurance premiums can vary depending on whether you have a fixed-rate or adjustable-rate mortgage.
How Mortgage Insurance Affects Your Monthly Payment
Mortgage insurance is added to your monthly mortgage payment. The amount you pay will depend on the factors mentioned above. For example, a borrower with a $200,000 loan, a 10% down payment, and a 700 credit score might pay around $150 per month in mortgage insurance.
Annual Mortgage Insurance Premiums and Cancellation
Private mortgage insurance (PMI) is typically paid annually, and it can be a significant expense. However, you can usually cancel PMI once you have reached 20% equity in your home.
Government-Backed Loans and Mortgage Insurance
Government-backed loans, such as FHA loans and VA loans, also require mortgage insurance. However, the premiums are typically lower than those for PMI.
| Type of Loan | Mortgage Insurance Type | Average Premium | |
|---|---|---|---|
| Conventional loan | PMI | 0.58% to 1.86% | |
| FHA loan | MIP | 0.85% to 1.05% | |
| VA loan | Funding Fee | 2.15% to 3.3% |
Conclusion
Now that you know how much mortgage insurance costs, you can budget accordingly and make an informed decision about whether or not it’s right for you. Don’t forget to check out our other articles for more tips on home buying and financing.
FAQ about Mortgage Insurance
What is mortgage insurance?
Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on their mortgage.
What are the different types of mortgage insurance?
There are two main types of mortgage insurance: private mortgage insurance (PMI) and government mortgage insurance (FHA, VA, USDA).
How much does mortgage insurance cost?
The cost of mortgage insurance varies depending on the type of insurance, the loan amount, and the borrower’s credit score.
Who pays for mortgage insurance?
Typically, the borrower pays for mortgage insurance.
What is the minimum down payment to avoid mortgage insurance?
For conventional loans, a down payment of 20% is required to avoid mortgage insurance.
When is mortgage insurance removed?
Mortgage insurance is typically removed once the borrower has reached a certain equity threshold in their home.
Can I cancel mortgage insurance?
Yes, you may be able to cancel mortgage insurance if you reach 80% equity in your home, make a large principal payment, or refinance your mortgage into a new conventional loan.
What happens if I don’t pay mortgage insurance?
If you don’t pay your mortgage insurance premiums, the lender may foreclose on your home.
How can I get rid of mortgage insurance?
You can get rid of mortgage insurance by reaching 20% equity in your home, making a large principal payment, or refinancing your mortgage.
What is the average cost of mortgage insurance?
The average cost of mortgage insurance is between 0.5% and 1% of the loan amount per year.
