Why is Mortgage Insurance Necessary?


Filed under: Mortgage Insurance


Your lender is telling you that it is necessary to buy mortgage insurance… but, why? This topic is one that we address all the time because homeowners are wondering why they must pay the extra cost for insurance on their mortgage.

It feels like a mysterious expense that many people don’t understand. Why should you pay for something if you won’t ever be the beneficiary of the payout?

What is Mortgage Insurance?

Today I want to explain a little bit about mortgage insurance and help you see why it is required for certain types of loans. Then, I also want to cover information about how you can rid of mortgage insurance when it is no longer needed.

If you are buying a home and you put less than 20% down, you will always have some form of mortgage insurance. There are various types of insurance, such as borrower-paid mortgage insurance or lender-paid mortgage insurance. One way or another, it will be added to the cost of buying a home.

This insurance policy is designed to help to protect the lender. If the buyer defaults on the loan, then the insurance covers the financial damages for the lender. Most loan types have some form of mortgage insurance.

Do You Always Have to Pay for Mortgage Insurance?

Don’t worry; you don’t have to pay the insurance for the life of the loan. In most cases, there is no need to pay for the insurance for the length of the loan. But, there are some newer loans, such as FHA loans that have been issued in the past three years, that require insurance payments for the life of the loan. The only way to get out of the insurance payments with this type of loan is to refinance or pay the house off.

Homeowners who have conventional loans can often get rid of the mortgage insurance costs after the 20% mark is reached. Once 20% of the loan is paid, then you can talk to the lender to get rid of the insurance payment without refinancing. If you have questions about this process, then you are welcome to contact me anytime for assistance with your loan.

Most homeowners with loans more than a couple years old should look at options to remove the mortgage insurance payments. Values have been going up in almost every market, so the ratios are likely good enough to stop paying the mortgage insurance.

Do you have any other questions? Call me at Franklin Loan Center for more information!


Franklin Loan Center | NMLS 237653
Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, 4131316
http://www.nmlsconsumeraccess.org/entitydetails.aspx/COMPANY/237653
For questions or concerns please email info@franklinlc.com