What does mortgage insurance “insure”, why do we need it and what does it do for you?
There are 2 types of mortgage insurance: Government and Private.
1. The private one is called PMI: Private Mortgage Insurance
2. The government is called MIP: Mortgage Insurance Premium
How Long Do You Have To Pay Mortgage Insurance?
PMI can be canceled once you reach 20% equity in your home MIP is only canceled if you put 10% down or more and keep the loan over 10 years, otherwise you’re stuck with it for the term of the loan.
What Is The Cost Of Each Mortgage Insurance Based On?
The cost of PMI is based on your credit score, loan size and down payment. The cost of MIP is set by the government, and everyone pretty much pays the same. You can be denied coverage for PMI but not MIP.
Not all private mortgage insurance is the same: you can actually shop the rates online. Mortgage insurance IS NOT life insurance, it protects the lender against your default on the loan. It allows Americans to purchase homes with small down payments – as little as 3% with Fannie Mae and Freddie Mac and 3.5% down with FHA.