What is Mortgage Insurance?

Private Mortgage InsuranceMortgage insurance is an insurance policy that protects a lender if the borrower defaults on payments, passes away, or is unable to meet the contractual obligations of the mortgage. If a borrower defaults on their mortgage payments, the mortgage insurance company pays back the loan. It is a guarantee of the principal.

Mortgage insurance is sometimes required for certain types of mortgages. The most popular being FHA Loans. FHA requires a loan have mortgage insurance on it. In fact, more often than not, if you put down less than 20%, you will have to pay mortgage insurance. Mortgage insurance is required when loans are high loan to value (LTV) because the loan is riskier. Having mortgage insurance spreads the risk of default between the lender and insurance company.

Each month when you make your mortgage payment, you will also make a mortgage insurance payment. The mortgage insurance is calculated as a percentage of the loan balance. This amount varies, just like interest rates do, and depend on a number of factors.

You will make mortgage insurance payments until the language in your loan allows you to stop. This is usually triggered by a specific event. Most commonly paying down the loan balance to below 80% of the value of the home. The other common trigger is 5 years; once you have made your payments for the first five years, as with FHA loans, the mortgage insurance is no longer required.

You will most likely be required to have mortgage insurance on your next home. Start your search for a home in California with CAPropertyFinder.com. You may also call us at 1-800-287-1808 and put our team of California Realtors to work for you buying and selling homes.

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