Follow Patrick Linkedin Facebook
Email Patrick Email
Financial
Nov 1, 2014

What Is Mortgage Insurance?

Sponsored Content provided by Patrick Stoy - Mortgage Consultant/Owner, Market Consulting Mortgage

Webster’s dictionary defines mortgage insurance as an evil monkey that sits on your back, steals your money every month, and gives you nothing in return. Well, that’s not exactly true. What is true is that mortgage insurance is a psychological thorn in the side for many people, since it is a fee that has to be paid for no other reason than to safeguard a lender from a borrower default.

In most cases, mortgage insurance comes into play when a person can’t afford to put down 20 percent of a home’s purchase price. It is usually a monthly premium based on the amount of money that was originally financed, which protects the lender’s interests in the event the borrower is unable to fulfill his or her obligations.
The benefit of mortgage insurance is that it allows people who don’t have tens of thousands of dollars in savings to achieve the dream of home ownership, thus contributing to the stability of our communities and our nation. One of the major disadvantages is that mortgage interest is not tax deductible.

There are two types of mortgage insurance: the mortgage insurance associated with FHA loans, and private mortgage insurance, which is associated with conventional loans. FHA loans were designed to provide a pathway to home ownership for people with no other options. These types of loans originate from the government and mortgage insurance is required for the life of the loan.

With conventional loans, mortgage insurance can be eliminated once a borrower has approximately 20 percent equity in the property. Another way of saying it is that when the loan-to-value ratio hits 80 percent or higher, the mortgage insurance can be avoided. The mortgage insurance may automatically be canceled at this point or the borrower can request for cancellation when there is 20 percent equity in the property, based on the current market value.
Is there a way to get out of it sooner?

With FHA loans, the only way to avoid paying mortgage insurance is to refinance. For conventional loans, refinancing can also be a viable strategy for eliminating mortgage insurance. I have a fundamental disagreement with the idea of mortgage insurance, so I often advise my clients to pursue any option that might allow them to avoid it.

As an example, many folks choose a loan with the lowest possible interest rate. In the vast majority of cases, these types of loans require the borrower to have mortgage insurance. Choosing a loan with a higher interest rate might be the best option for many people, since the result can often be lower payments and no mortgage insurance.  

What’s surprising for many people is that it’s not about the rate. In many cases a higher rate simply allows for more flexibility. After all, who wouldn’t want a lower payment? Having a higher interest rate allows me to help people refinance with no closing costs. Plus, who wouldn’t want to avoid mortgage insurance? The draw for purchasing a home for many people is to make a solid investment and avoid throwing money away each month in the form of rent.
Mortgage insurance doesn’t help anyone but the lender, especially once a borrower is already in a property. My belief is that most people will see the value in not having mortgage insurance and will seek to avoid it at all costs.

Of course, the only sound advice related to the financing of a home is advice that is specifically tailored to an individual’s unique financial situation and goals. For a comprehensive, no obligation assessment of the options that might be available to you, pick up the phone and give me a call or shoot me an email. I’m always happy to work with new clients and look forward to the opportunity to help you achieve your goals.

Patrick Stoy has 15 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.

Other Posts from Patrick Stoy

Mcm 14jan insight
Ico insights

INSIGHTS

SPONSORS' CONTENT
Chheadshot

Overcoming the Opioid Overdose Crisis

Dallas headshot 300x300

Protecting What You Care About: Business, Family, & Employees

Dallas Romanowski - Cornerstone Business Advisors
Deedee gasch

Analyzing the Wrongful Death Lawsuit Against Tiger Woods, His Bar, and His Girlfriend: A Lawyer’s Perspective

Deedee Gasch - Cranfill Sumner & Hartzog LLP

Trending News

Entrepreneur Richard Johnson's Latest Project Aims To Boost Burgaw

Johanna Cano - Jun 14, 2019

New Hanover Regional Grows To A $1.2B Operation

Vicky Janowski - Jun 14, 2019

Plastics Molding Manufacturer Gets Its Start In Wilmington

Christina Haley O'Neal - Jun 14, 2019

Field Of Vision

Jenny Callison - Jun 14, 2019

In The Current Issue

Making The Case For A Real-life Travel Agent

With the internet and automation changing the landscape of many jobs, it is no surprise that online travel planning services would force the...


Firms Navigate Latest Tax Law Changes

During tax season this year, media reports indicated that the many changes in the Tax Cuts and Jobs Act of 2018 were producing confusion amo...


Manufacturer On Board To Invest $25M

With its proximity to the Cape Fear River and customer markets, the Wilmington area provides an essential location for National Gypsum, a gy...

Book On Business

The 2019 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`
Transporting the Future - Power Breakfast 3.12.2019
Health Care Heroes 2018