Do you know what mortgage insurance is?
Many people confuse mortgage insurance with mortgage life insurance, mortgage disability insurance, or even homeowners insurance. These are all very different types of insurance - no wonder there is such confusion! Mortgage insurance is generally required when the down payment on a home is less than 20%, and it is designed to protect the lender in the event of loan default. The lower the down payment, the higher the risk for the lender, and this can mean a higher monthly mortgage insurance premium. Depending on the specifics of your information, there are ways in which mortgage insurance can sometimes be avoided at the time of purchase, or dropped altogether at some point in the future. Many lenders now offer a single loan that doesn’t require Mortgage Insurance. These generally have a slightly higher rate.
If you have to choose, which one is best for you?
Lets look at one home purchase with three scenarios
$200,000 home
$180,000 loan (with $20,000 down)
Scenario A
One loan WITH mortgage insurance
Payments of $1,320.00 plus mortgage insurance payments of around $80.00 per month for a total of $1,400 per month
Scenario B
One loan WITHOUT mortgage insurance (8