Mortgage Insurance Cost

Typical costs:

• Private mortgage insurance^[1] can be charged as either an up-front premium or as an ongoing monthly payment, or both.
• An up-front mortgage insurance premium can be as high as 3%, or $6,000 on a $200,000 home.
• The monthly insurance premium is calculated as a percent of the mortgage annually, and then divided by 12 for equal monthly payments. Private mortgage insurance typically costs 0.5%-1% of the entire loan amount on an annual basis. On a $200,000 loan this means the homeowner could pay as much as $2,000 a year, or $167 per month.
• If the Federal Housing Authority is the guarantor on the loan, then the borrower will likely be required to pay both an up-front premium and an ongoing one.

• The rate is charged on a sliding scale; the larger the down payment, the lower the premium. For instance, a homebuyer who makes a 5% down payment will pay less than a homebuyer who makes a 15% down payment. The theory is that the larger the down payment the buyer is able to make, the lower the risk that the buyer will default on the loan -- and the less money lost if they do.
• Mortgage insurance can be canceled once 20% of the mortgage has been paid. Check with the lender to find out what is required to formally cancel the insurance once it is time. Lenders must automatically cancel the insurance when the balance hits 78% of the loan, since by then the 20% threshold would have passed and the mortgage holder can reasonably be considered reliable. That is, unless the homebuyer is considered very high risk, such as if they had missed or been late on mortgage payments.
• Some analysts advise that homebuyers should avoid paying mortgage insurance if at all possible. An investopedia.com analyst, for example, has advice on how to pay a smaller premium through "piggyback loans" -- essentially, a second loan on top of the mortgage that goes toward the down payment, thus reducing the mortgage insurance premium.
• Mortgage insurance is one of several closing costs that buyers pay when purchasing a home.
• Mortgage insurance is different from title insurance, which protects the lender and/or owner against the home's title, and homeowner's insurance, which protects the owner should the home be physically damaged.

• Mortgage insurance has traditionally been tax deductible. However, this tax deduction was recently canceled by the federal government. The last year the tax deduction^[2] was available is 2011.
• In some states, it is common for the lender to share the cost of mortgage insurance.
• Disaster victims, such as those who lost their homes in Hurricane Katrina, may have their mortgage insurance waived through the federal US Department of Housing and Urban Development^[3] .

• CNN Money provides an mortgage insurance calculator^[4] .
• Visit HUD's lenders list^[5] to find a lender.
• Mortgage Insurance Companies of America, a trade group, offers a list of frequently asked questions^[6] on mortgage insurance.

1.  www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx
2.  www.irs.gov/publications/p936/ar02.html#en_US_2011_publink1000259859
3.  portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/203h-dft
4.  cgi.money.cnn.com/tools/mortgagecalc/
5.  www.hud.gov/ll/code/llslcrit.cfm
6.  www.privatemi.com/toolsresources/faqs.cfm

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