What is Mortgage Insurance?

mortgage_insuranceInsurance — can’t live without it, right?  We hate to pay it,  until we need it!  There is one type of insurance that is often required in a real estate transaction, like it or not, and it’s called Mortgage Insurance.

If the borrower of a mortgage loan does not meet a specified percentage equity amount in a property after making the down payment, then mortgage insurance is required by the lender.  It covers the lender for the added risk of a high loan-to-value (LTV) mortgage.

Generally, mortgage insurance is required when the loan amount exceeds 80% of the value, which is traditionally determined by a professional appraisal done by the lender.  So for a borrower with less than 20% down payment, this insurance premium will be added to the payment.  It can usually be canceled when a specified LTV is attained, i.e. when the equity in the home has reached a certain point and the risk is not as great for the lender.  It’s important to read the loan documentation, since specifications can vary by the loan type and the lender.

Don’t confuse mortgage insurance with homeowner insurance, which covers risks from fire, liability, etc.  Homeowner insurance is also usually required when securing a mortgage, but is separate from mortgage insurance.

For more information, give me a call at (805)937-5777, and if you need a referral to a good local lender, I will be happy to help!



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