WHAT IS PRIVATE MORTGAGE INSURANCE?
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WHAT IS PRIVATE MORTGAGE INSURANCE?

WHAT IS PRIVATE MORTGAGE INSURANCE?

Private mortgage insurance (known by the acronym “MI”) allows the lender to grant a mortgage even if the down payment is less than 20% of the house’s value. Mortgage insurance protects you from loss if the buyer defaults on the mortgage.

WHAT TYPES OF MY DOES ESSENT OFFER?

Essent offers standard Debtor Paid Mortgage Insurance (BPMI) plans with monthly and deferred premiums. With a standard BPMI, you pay the initial MI premium at closing. With deferred BPMI, you pay the initial premium along with the first mortgage payment. It also offers a single premium BPMI option, which allows you to make a single MI down payment at closing or finance the price with the loan. It also provides the option of MI paid by the lending institution (LPMI).

HOW ARE MY LOANS DIFFERENT FROM FHA LOANS?

Like Essent, FHA offers MI on low-down payment loans. However, there are some key differences to be aware of:

  • Essent is a private mortgage insurer financed through private investments. The FHA is a taxpayer-funded government agency.
  • Essent offers multiple MI premium plans to meet individual needs. FHA only offers an MI premium plan.
  • Essent offers mortgage insurance for loans with a 0% down payment. The minimum down payment required by the FHA is 3.5%.
  • Essent MI can be canceled when the capital reaches 20%. PMI cannot be canceled on most FHA loans.

Lastly, depending on the type of loan, MI premiums with Essent may be lower than with FHA.

IS IT THE SAME AS MORTGAGE LIFE INSURANCE OR HOME INSURANCE?

No. Mortgage life insurance (also called mortgage credit life insurance) generally pays off the mortgage in the event of the debtor’s death. Home insurance covers the owner in case of material damage caused by events such as fires and other disasters.

AM I RESPONSIBLE FOR PAYING ME?

BPMI generally passes the cost of insurance premiums on to you, the borrower, as a component of the monthly mortgage payment. LPMI typically covers the cost of bonuses through a slightly higher interest rate on the mortgage or a one-time fee. In some cases, the lending institution may assume the premiums.

The lender or credit establishment is responsible for sending your insurance premium payments to Essent. (The lending institution is the one that makes the loan, while the credit establishment is the one that collects the loan payments and manages your reserve account if applicable. The lending institution and the credit establishment are not always the same business).

You should contact your credit institution directly if you have questions about your mortgage or insurance premiums.

CAN I REMOVE OR CANCEL MY MORTGAGE INSURANCE?

And it is. Under the Federal Homeowners Protection Act of 1998 (HPA):

  1. You can ask your credit institution to cancel your BPMI when you believe that the outstanding balance of your loan is 80% or less of the original value of the property. The cancellation request is subject to HPA requirements and may require a new property appraisal to verify that the value of your home has not declined.
  2. Your lender should automatically cancel BPMI when the loan is scheduled to reach 78% of the property’s original value, provided the loan is current, or when the loan reaches its midpoint (e.g., 15 years on a 30-year mortgage).

Please note that MI cancellation under HPA only applies to BPMI loans for single-family primary residences. (LPMI loans can only be canceled when paid off or refinanced.) In some states, like New York, cancellation laws predate and may replace the HPA. Contact your lender to ask about BPMI cancellation.

ARE MY MI PREMIUMS TAX-DEDUCTIBLE?

Suppose you itemize your tax deductions and have paid or accrued MI premiums on a mortgage contract entered into before January 1, 2007. In that case, you are entitled to deduct the premiums from your federal income taxes, subject to certain income restrictions.