Buying A House In Portland? Make sure you know what Mortgage Insurance is.June 28th, 2007 But everyone needs to weigh the options because Mortgage insurance can be expensive for borrowers, often requiring a hefty chunk of money up front, and payments added to the house note every month. What is mortgage insurance?
Mortgage insurance protects lenders from losses if the borrower defaults on the home loan. It is required for borrowers who make less than a 20 percent down payment but the insurance is canceled when there is enough equity built up in the home. Mortgage insurance can be expensive for borrowers, often requiring a hefty chunk of money up front, and payments added to the house note every month. Some home buyers get around the requirement by taking out two loans. Usually the second loan is a home-equity line of credit which enables them to make the larger down payment. Home-equity lines of credit, however, usually have higher interest rates than the primary mortgage and the interest rate can rise even more because the rate is adjustable.
The fixed rate on mortgage insurance plus a new tax break are encouraging more buyers with a low down payment to use it. The percentage of mortgages that included this feature rose by 8.5 percent from the previous month in February of 2007, according to the Mortgage Insurance Companies of America.
The simplicity of having just one mortgage payment makes mortgage insurance more attractive to many buyers. A new tax break is also encouraging buyers to use mortgage insurance. Certain people who take out a mortgage or refinance in 2007 are eligible to write off all or a portion of their mortgage-insurance premiums for the year. For some buyers, the two loan option (called a piggyback loan) makes sense, say experts at the Mortgage Bankers Association. But everyone needs to weigh the options in light of their own situation.
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