Private Mortgage Insurance Frequently Asked Questions

What is mortgage insurance? 
How is mortgage insurance different from other types of home insurance?  
Why do I need mortgage insurance?  
How are mortgage insurance premiums paid?  
What types of loans are covered by mortgage insurance?  
How does mortgage insurance help home buyers?  
Is my mortgage insurance tax deductible?  
Can I cancel my mortgage insurance?  
If the policy is cancelled, will I receive a refund?  
What are the most important things for me to know about mortgage insurance?  

What is mortgage insurance? 
Mortgage insurance is an insurance policy that is required on certain loans where the down payment is less than 20% of the purchase price.  This policy protects the lender from an potential losses incurred from having to foreclose on the borrower's home (in the event the borrower defaults on the loan).  

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How is mortgage insurance different from other types of home insurance?  
There are several types of insurance that a home owner will consider.  Hazard insurance is designed to protect the home owner from any loss due to specified hazards such as a fire.  Home owner's insurance protects a the owner if the house and/or its contents suffer from unforeseen occurrences such as weather damage or theft.  Mortgage life insurance is an insurance policy that provides financial protection for the home owner and/or his/her family in the case of the home owner's death.

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Why do I need mortgage insurance?  
You personally do not need mortgage insurance.  Mortgage insurance is an insurance policy to protect the lender.  However most conventional loans where the borrower is make a down payment less than 20% of the value of the home will be required to pay for mortgage insurance.  This protects the lender from financial loss and reduces the risks associated with home loans, even if the borrower has a good credit rating.  

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How are mortgage insurance premiums paid?  
Mortgage insurance premiums are collected 1) as a monthly payment charged to the borrower, 2) as a lump sum to the borrower at closing, 3) wrapped into the loan amount or 4) wrapped into the loan's interest rate.  It is important to note that your options will vary from loan to loan and lender to lender.

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What types of loans are covered by mortgage insurance?  
Any conventional loan where the borrower makes less than a 20% down payment.  In general this includes 30 year and 15 year fixed rate mortgages, adjustable rate loans, balloon mortgages, purchases, refinances, and virtually any low down payment conventional loan in between.  Other programs, such as FHA insured mortgages, have hybrid forms of mortgage insurance that are charged to the borrower.

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How does mortgage insurance help home buyers?  

1) Become a home owner sooner.  To buy a home without mortgage insurance, the home buyer will generally need to make a 20% or greater down payment on the home.  If the sales price is $100,000, for example, the home buyer will need $20,000 to purchase the home.  Mortgage insurance, on the other hand, allows the same home owner to purchase that home with as little as 3% or $3,000 in this example.

2) Increase the home buyer's purchasing power.  Mortgage insurance allows a home buyer to purchase more home.  Assume a young couple has saved $10,000 for the purchase of a home.  Without mortgage insurance, their $10,000 down payment would only allow them to purchase a $50,000 property ($50,000 x 20% = $10,000).  On the other hand, mortgage insurance gives the young couple more options.  They could make a 10% down payment on a $100,000 home ($100,000 x 10% = $10,000) or even make a 5% down payment and use the remaining 5% for decorating, investing, or take a vacation.

3)  Gain tax advantages.  By making smaller down payments, a borrower may gain tax advantages because he/she will have more deductible interest to claim.

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Is my mortgage insurance tax deductible?  
The mortgage insurance payment made each month is not tax deductible.  However if the premium is included into the loan amount, the interest rate, or eliminated due to a second mortgage or carry-back loan, the additional interest charged to the borrower may be tax deductible. 

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Can I cancel my mortgage insurance?  
This depends on the type of loan you have and when the loan was written.  Click here to find out more about canceling your mortgage insurance payment.

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If the policy is cancelled, will I receive a refund?  
In most cases, the mortgage insurance premium is non-refundable.  You should check with your lender to determine whether you will receive a refund.

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What are the most important things for me to know about mortgage insurance?  
Mortgage insurance allows home buyers many advantages that they would not normally have been afforded.  Mortgage insurance allows a home buyer to purchase a larger house with a smaller down payment than traditionally required.  Also, mortgage insurance allows home buyers to purchase homes sooner without having to spend months (years) in trying to save enough money for a down payment.  Finally, mortgage insurance gives home buyers a greater tax advantage.  A smaller down payment usually means that the home buyer can claim a larger mortgage interest deduction on their income taxes. 

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