Mortgage Insurance - why or why not?
Let's start by defining what Mortgage Insurance is all about. Mortgage Insurance is charged to a borrower, so if the loan must be foreclosed, the lender will be compensated for their loss. Only loans with a downpayment of less than 20% are required to have Mortgage Insurance.
Mortgage Insurance can vary from about 1.0% to 1.25%. Some types of policies (i.e. FHA) have upfront mortgage insurance of about 1.75%. Here is an example:
FHA Example
$250,000 Home Purchase
$ 8,750 3.5% Down Payment
$ 4,250 1.75 Up Front Mortgage Insurance
$ 4,000 Closing Costs and Prepaid Finance Charges
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$240,000 Loan Amount
$1,044.50 30 year fixed Principal & Interest Payment @ 3.25%
$ 70.00 Homeowners Insurance
$ 150.00 Property Taxes
$ 250.00 Morgage Insurance
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$1,514.50 Total
But now there are programs that build the Mortgage Insurance into the rate.
Conventional Example
$250,000 Home Purchase
$ 12,500 5% Down Payment
$ 4,000 Closing Costs and Prepaid Finance Charges
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$237,500 Loan Amount
$1,168.36 30 year fixed Principal & Interest Payment @ 4.25%
$ 70.00 Homeowners Insurance
$ 150.00 Property Taxes
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$1,388.36 Total
So, even with a higher rate, the payment is lower for Conventional Loans with built in Mortgage Insurance. But, with Mortgage Insurance NOT built-in, the Mortgage Insurance can be eliminted with enough equity built from appreciation (20-25%) after five years.
There are a lot of factors to consider when choosing Mortgage Insurance products or built-in alternatives. Please contact me anytime to discuss your particular circumstance.
Brent A. Wood
All Western Mortgage
702 629 9555
bwood@allwestern.com
