As a mortgage broker, I understand that the home buying process can be overwhelming and confusing, especially when it comes to understanding mortgage insurance. That's why I want to take a moment to explain how it works and how it can benefit you as a borrower.
Mortgage insurance, also known as private mortgage insurance (PMI), is a type of insurance that protects lenders in case a borrower defaults on their mortgage loan. It's typically required when a borrower makes a down payment of less than 20% of the purchase price of a home.
So, what does this mean for you? When you take out a mortgage, the lender may require you to pay a certain percentage of the loan amount as mortgage insurance. This percentage is usually between 0.3% to 1.5% of the loan amount, and is added to your monthly mortgage payments.
It's important to understand that this is not an expense that goes to waste. Mortgage insurance is a way for lenders to mitigate their risk in case a borrower defaults on their loan. It can help make home ownership more affordable for people who may not have a large down payment.
It's also important to note that mortgage insurance does not protect you, the borrower. However, there are other types of mortgage insurance, such as mortgage life insurance, which can protect you and your family in case something happens to you and you are unable to make mortgage payments.
As you continue on your journey to homeownership, it's important to keep in mind that once you reach a certain level of equity in your home, typically 20%, you can request to have the mortgage insurance canceled. This means that you'll no longer have to pay the mortgage insurance premium and your monthly mortgage payments will decrease.
I hope this information helps to clear up any confusion about mortgage insurance and how it can benefit you as a borrower. I'm here to guide you through the process and make sure you understand all your options.