Mortgage Insurance Cost
Mortgage insurance is basically an insurance policy that helps the investors from ending up in losses as the borrowers fail to pay money. The mortgage insurance can be private and public. It is also taken as the easiest alternative for making huge down payments. It is essential for an individual to know the mortgage insurance cost from various mortgage companies so that he can make the best decision. People tend to opt for the policy which cost him the least. The concept of mortgage cost is quite simple to understand and it gets easier as you see this cost in terms of investment, something which people are more familiar with.
How much does mortgage insurance cost?
There is no fixed cost related to mortgage insurance. However, the premiums of mortgage insurance cost vary but usually they range from 0.5% to one percent of the loan amount. This percentage is determined on the size of the down payment made and the type of loan that is applied. For instance, on a loan of $200,000, with $10,000 down payment, you may be asked to pay approximately $85 per month or around $1,000 per annum apart from the mortgage payment. The amount of premium one pays is not tax deductible. Mortgage insurance is considered to be one of those insurance policies that do not underwrite the premiums on the basis of an individual default risk. The premiums are based by keeping into account the amount paid down for the mortgage insurance quote. Thus individuals with same mortgage down payment and mortgage amount will bear the same mortgage insurance cost in the form of premiums.
Overall, the mortgage insurance cost is expressed in many ways. The amount can be paid as an upfront payment and in case it is a premium product, you can capitalize it on your loan. Such type of insurance is required if you pay less than twenty percent of the sale price as your down payment. If the principal value reduces to eighty percent, you will be exempted from PMI. There are several cases when the principal reduces to eighty percent and can help in reducing the mortgage insurance cost. The most prominent ones are, paying the required principal amount, appreciation of home value or a combination of both.
Reasons for avoiding mortgage insurance
Even though, buying a home through mortgage insurance seem to be the best option and sometimes the best option one has. However, there are some reasons which can make you think twice before you avail this option. The most important reason is the mortgage insurance cost. As mentioned earlier, the cost lies somewhere between 0.5% and 1%, it ends up absorbing a lot of money. On average you need to be able to pay $200 per month on just insurance, that is not an easy thing to manage in such economic crisis times. The real mortgage insurance cost is the clause related to the monetary compensation. In case you die, your spouse or your kinds will get nothing. Under the rules, the only beneficiary is the lender and it has no link with the heirs. In case you want financial protection for your heirs, then this policy is not right for you. PMI just helps the lender and no one else. As stated earlier than once the lender has crossed the 20% barrier he is not liable to pay the PMI anymore. This is not as easy as it sounds. You would need to draft a letter making cancellation request of PMI. This application can take several months or even a year to get approved, depending on the lender. Thus, you would be still paying the mortgage insurance till the time it is cancelled.