Two Ways to Pay Your Mortgage Insurance and Its Differences

Mortgage insurance is one of the monthly fees that you have to pay whenever you get a house loan in states like Tennessee. It protects the homebuyers from the event that the borrower may die, defaults on payments or any instance that the borrower may not be able to meet the mortgage’s contractual obligations.  It acts like a safety net if in case something unexpected happens. Mortgage insurance is usually a part of your monthly payment. It can be cancelled when your mortgage balance reaches at least 80% of the house’s original or current appraised value and will be automatically cancelled as soon as your loan reaches 78%.

Borrower- Paid Mortgage Insurance

Borrower- Paid Mortgage Insurance or BPMI lets you pay the premium of your mortgage insurance to your lender. Your lender then pays the mortgage insurance company for you. Borrowers may be required to pay either the single lump sum of the MI (mortgage insurance) premium or pay it on a month to month basis.

Paying your mortgage insurance with premium together with your monthly car payment can help you lower its costs. It is also more convenient since you may be able to reach it in a few months’ time. However, it would be much faster if you make larger mortgage payment every month. That will cover a portion of the remaining months’ payment until you reach at least 80% of your house’s original or appraised value. However, it may be more expensive in the long run because you would have to pay it longer than other payment options.

Lender- Paid Mortgage Insurance

Lender- paid mortgage insurance is when your lender pays the premium and builds the mortgage insurance cost into your mortgage’s interest rate. Your lender will cover the premium for you Instead of your lender collecting a monthly or single premium mortgage insurance payment. However, LPMI (Lender- paid mortgage insurance) will have to be paid until the end of your mortgage unlike the BPMI. This is great for people who wants to budget their money on a month to month basis because the mortgage insurance payment will be a part of your mortgage payment every month.

However, even if LPMI may require you to pay a higher overall mortgage rate if compared to BPMI, it can still end up with a much lower monthly mortgage payment and may even offer tax benefits. Another good thing about LPMI is that it offers payment flexibility to the borrower. 

Both BPMI and LPMI offers advantages and disadvantages to borrowers. Assessing your current financial situation may help you decide whether you’d like to have either of the two. It would always be best to consult a broker to get a professional opinion.