Borrowers will save as mortgage insurance premiums drop

Homebuyers are poised to see lower monthly payments in many cases as mortgage insurance firms cut premiums this spring.

Both Radian and MGIC, two large private mortgage insurers, announced they are cutting premiums due to new tax laws. MGIC said Monday that it expects many borrowers to see an 11 percent savings on insurance premiums on average. Radian made a similar announcement several weeks ago, and analysts are now expecting the entire marketplace for private mortgage insurance to react with similar price decreases.

Greg Richardson, executive vice-president of capital markets at Movement Mortgage, says the changes are expected to save borrowers money and potentially help more borrowers qualify for for credit.

Private mortgage insurance, known as PMI, is commonplace in many mortgage products and is often paid for by the borrower. The insurance protects the lender from losses in the event of late payments or default. Borrowers generally pay the premiums in installments added to the monthly principal and interest payments on a mortgage loan.

Borrowers often are required to have a loan-to-value ratio of 80 percent or less to avoid PMI, meaning borrowers who do not have a large down payment when buying their home are usually subject to the insurance premiums.

The price of private mortgage insurance is determined by a variety of factors, including the borrower's credit and income, the home's value, the type of mortgage product selected and many other factors. To learn how lower pricing would affect a specific homebuying scenario, speak to a licensed loan officer.

Radian's PMI premium changes were effective March 19. MGIC says its decreases will be effective on June 4.