What is Mortgage Insurance and Why Do We Need It
Why do you need mortgage insurance? The answer to that is lenders require it. Say you’re buying a new San Diego Condo and you have less then a 20 percent down payment; the lender will required you to purchase Mortgage Insurance (MI).
Mortgage insurance, also know as mortgage guaranty, is an insurance policy which compensates the lenders or investors from losses due to the default of a mortgage loan, thus limiting the lenders exposure to financial loss.
The cost of mortgage insurance can be incorporated directly into the mortgage in a process called capitalization. Having you MI capitalized the premium becomes an additional tax deduction. Mortgage insurance contracts issued in connection with a home purchase after 2006 may be treated as mortgage interest and therefore is generally considered deductible.
How Long Must I Pay Mortgage Insurance
You won’t be stuck with MI forever, lenders are required to terminate borrower paid PMI at 78% LTV (Loan To Value) based on the amortization schedule if the loan is current. If none of the above is done, PMI will terminate automatically at the midpoint of the loan term.
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Government back loans such as FHA will require MI insurance as well but if you like to get around paying for mortgage insurance you might like to take a look at Fannie Mae’s HomePath loan. The HomePath Loan will not require mortgage insurance. Using the Homepath loan option you can buy a San Diego Condo or home with as little as 3% down payment without the extra costs of MI.
One way to avoid Mortgage Insurance is to make a 20% or above down payment on your new San Diego condo or home. Please read the article below on owner occupancy levels and MI requirements.
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Steven Gluyas is a San Diego Realtor with 15 years experience specializing in San Diego Condos. Steve can be reach at 858-405-3797
