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Do I need mortgage insurance?

By: Movement Staff
September 24, 2019

In the homebuying process, it can seem as though there are lots of costs, and terms, thrown around. That can often leave you feeling confused. So what's the difference between mortgage insurance, private mortgage insurance, and homeowner's insurance? Do you even need MI? Learn more in this week's ABCs of Mortgage.


What is mortgage insurance?

Mortgage insurance. Let's face it. Life can be unpredictable. And that means some borrowers fall behind on their payments. Lenders protect themselves from missed mortgage payments with mortgage insurance. Some loans require you to pay the insurance premium every month, and others include it as an upfront fee. The best way to avoid mortgage insurance is to have at least 20% equity in your house.


What does mortgage insurance cover?

Mortgage insurance, or private mortgage insurance, exists to cover the lender that you borrow from. This is put in place in case the borrower happens to default on the loan (meaning you stop paying on it). Depending on your lender, it could be included either in your monthly payment or as an upfront fee with your closing costs. However, if eligible, you may not have to worry about paying any private mortgage insurance at all. 


do I need mortgage insurance

Do I need mortgage insurance?

Well, this will depend. Generally, if your LTV (loan-to-value) ratio is less than or equal to 80%, you should be able to not have to even think about mortgage insurance. What does that mean? Basically, that as long as you put down at least 20% toward a down payment, you could opt out. Otherwise, most loan programs will require it. But, there may also be the possibility of getting rid of private mortgage insurance in the future if you are required to pay for it. Often times, once you get to paying up to 20% of the home cost, you will be able to request the cancellation of PMI. So if you end up having to purchase mortgage insurance, mark your calendars for that date. 


Got it – what now?

Now, have a conversation with your local loan officer to discuss your options. They'll be able to look at your financial situation to see what you're comfortable with. And if the best loan choice for you will end up requiring PMI or not. They'll also be able to discuss the possible canceling timeframe with you if it is a requirement. 


The mortgage process doesn't have to be the most confusing thing in the world for you these days. If you're worried about all the different types of interest rates and insurance that you keep hearing about, don't fret. We're here to help you along the way with the ABCs of Mortgage. Know that you have options, if you feel able, to check mortgage insurance off the list as one of those concerns. And for any further questions, we have a loan officer near you ready to assist.

Talk to a loan officer.


Author: Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.