Q & A
- What is private mortgage insurance?
- How can private mortgage insurance benefit homebuyers?
- If a borrower doesn’t have a 20 percent downpayment, but has good credit and can meet the monthly mortgage payments, is the lender still likely to require mortgage insurance on the loan??
- Who pays for private mortgage insurance?
- How will private mortgage insurance affect a borrower's monthly mortgage payment?
- Can private mortgage insurance be cancelled?
Q: What is private mortgage insurance?
A: Private mortgage insurance is a type of guaranty that protects lenders against certain losses and costs resulting from foreclosure.
Q: How can private mortgage insurance benefit homebuyers?
A: Since the lender has some protection in the event that the borrower defaults on the loan, private mortgage insurance makes it more likely that lenders will provide loans to homebuyers who need to purchase a home with a lower down payment. With private mortgage insurance, a borrower can purchase a home with as little as 5% down.
Q: If a borrower doesn’t have a 20 percent down payment, but has good credit and can meet the monthly mortgage payments, is the lender still likely to require mortgage insurance on the loan?
A: Most likely, the lender would still require mortgage insurance. Most lenders require mortgage insurance for loans with a down payment under 20 percent.
Q: Who pays for private mortgage insurance?
A: The lender pays for private mortgage insurance, but usually passes on the cost to the borrower by adding it to monthly principal and interest payments.
Q: How will private mortgage insurance affect a borrower’s monthly mortgage payment?
A: Private mortgage insurance premiums vary and are based on the amount and terms of the mortgage, among other factors.
Q: Can private mortgage insurance be cancelled?
A: Yes, most lenders have simplified the process to allow borrowers in good standing to cancel mortgage insurance when the home’s current value, determined by an appraiser, has increased so that the loan-to-value (LTV) ratio of the property is 75% or less. In addition, the federal Homeowners Protection Act requires that borrower-paid MI be cancelled automatically once the borrower has paid down the loan to an LTV of 78%, based on the original value of the property. And borrower-paid MI may also be cancelled by written request of the borrower once the principal balance is paid down to 80% of the original purchase price.*
* Subject to the Homeowners Protection Act, applicable state law and, in certain cases, lender-specific guidelines.
