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When is mortgage insurance required?
Generally, it's required by the lender when the down payment is less than 20%.
What does mortgage insurance do?
For the lender, MI provides financial protection if the homeowner stops making mortgage payments. For
the homebuyer, MI makes it possible to purchase a home with less than 20% down. Millions of people
have been able to buy a home sooner because of MI.
Why do lenders need protection?
Studies have shown that homeowners with less than 20% invested in a home are more likely to default.
That makes low-down-payment mortgages riskier for lenders and investors. Mortgage insurance helps cover
this additional risk.
What does mortgage insurance do for me?
It can help you buy a home sooner by enabling you to put less than the traditional 20% down. It may
also help you afford more home by permitting you to make a smaller down payment. Or you may prefer to
pay 20% down and keep your cash for other purposes. MI helps you do that.
How much does MI cost?
It depends. Less mortgage insurance is required with a 15% down payment, for example, than with a 5%
down payment. It also depends on the type of mortgage and other factors. Your lender can provide you
with specific payment amounts.
Won't MI just increase my mortgage payments?
Your mortgage payments are determined mainly by the interest rate and the loan amount. Mortgage
insurance represents only a very small percentage of a mortgage payment.
How do I pay for mortgage insurance?
You may have several options, ranging from monthly premiums to a single premium financed as part
of the mortgage.
Do I have to pay for MI for the entire term of the mortgage?
No. The federal Homeowners Protection Act requires that mortgage insurance be canceled automatically
when a home builds up a certain amount of equity.
How much equity do I need before I can cancel?
When your mortgage balance reaches 80% of the home's original value or current appraised value, you may
request cancellation of the MI. By law, when the balance reaches 78% of the home's original value or
appraised value, the MI must be canceled automatically. For more about cancellation,
click here.
Does this law apply to all mortgages?
No, there are some exceptions. Your lender can tell you whether your mortgage is one of them.
What is required of the lender?
In addition to the cancellation requirements, the lender is required to provide you with certain
disclosures. At closing, the lender must provide written notification that there is mortgage
insurance on the loan and that you have a right to have it canceled under certain conditions.
Then, each year, the lender must send you a reminder that you have MI and that you can request
cancellation once the requirements are met.
More questions about mortgage insurance?
For specifics about available products and prices, or to learn more about the homebuying process,
contact a mortgage lender in your area.
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