Mortgage insurance, more commonly known as lenders mortgage insurance is insurance payable to the lender or trustee for a pool of securities that may be required when taking out a mortgage loan. This insurance is taken out in order to offset the losses incurred in the case where a mortgagor is unable to repay the loan and the lender is not able to recover its costs after foreclosure and the sale of the mortgaged property.
The annual cost of Lenders Mortgage Loan can be calculated in terms of the total loan value, proportion of the total home value it covers, loan type, loan term and frequency of premium payments. The insurance may be payable upfront or it could be capitalized on to the loan amount in the case of a single premium product. Also you should keep in mind that this type of insurance is only required if the down payment is lesser than 20% of the sales price or appraised value. There is also the option of Lender Paid Mortgage Insurance. In this case the term of the policy may vary according to type of coverage provided. In the event of Lender Paid Mortgage Insurance, borrowers usually have no knowledge of the lender paying for the Mortgage Insurance. Most of the mortgage programs that say no mortgage insurance required is paid for by the lender, and the cost is generally covered by a higher interest that the borrower pays. Therefore the best option is to pay a 20% or more down payment in order to avoid having to get a Lenders Mortgage Insurance or ensure you are getting the best possible insurance cover for the premium you pay.