There are four types of private mortgage insurance that are issued with Conventional loans. Figuring out which one is the right fit can be challenging as each type of Mortgage Insurance has their own advantages and determining which is best will depend on a borrower’s specific situation.
Borrower-Paid Mortgage Insurance
Borrower-Paid Mortgage Insurance, also known as BPMI, is the most common type of mortgage insurance. Borrower-Paid Mortgage Insurance is added on to the borrower’s regular monthly mortgage payment. An advantage of BPMI is that it can be removed within a few years upon approval from the mortgage lender. General rule of thumb is that the borrower must have at least 20% equity in their home in order to get their borrower-paid mortgage insurance removed. This can ultimately result in a lower monthly payment for the remainder of the loan term.
Lender-Paid Mortgage Insurance
Lender-Paid Mortgage Insurance, also known as LPMI, has recently become a popular option when it comes to types of mortgage insurance. Lender-Paid Mortgage Insurance is when the lender pays the mortgage insurance premium for the borrower by building the cost into the interest rate. Although it has a higher rate, it can result in paying an overall lower monthly mortgage payment and even help qualify the borrower for a larger loan. One disadvantage of Lender-Paid Mortgage Insurance is that after the borrower’s Loan-to-Value reaches 78%, they are unable to cancel or drop this type of mortgage insurance. The only option would be to refinance the mortgage in hopes of getting a lower rate and ultimately a lower monthly payment.
Single-Premium Mortgage Insurance
Single-Premium Mortgage Insurance is when the homeowner has the option to pay the mortgage insurance in full upfront by either paying it out of pocket at closing or financing it into the mortgage. In turn, the borrower does not have to make monthly mortgage insurance payments or have their interest rate increased to pay for it. An advantage of Single-Premium Mortgage Insurance is a lower monthly payment, which allows the borrower to qualify for more home. The disadvantage is if the borrower chooses to refinance or sell their home within a few years of the purchase, they will not be given a refund on the Single-Premium Mortgage Insurance and could cost the borrower more than the other forms of mortgage insurance mentioned in this article.
Split-Premium Mortgage Insurance is the least common of the various private mortgage insurance premiums but can still be beneficial. This option allows the borrower to pay a portion of the premium in a lump sum at closing and the remaining amount in monthly installments with their regular mortgage payments. This lowers the homeowner’s monthly mortgage insurance because they have already paid a good portion of it upfront.
If you have any questions regarding which private mortgage insurance option is right for you, please give us a call at (760) 930-0569 to discuss further.