What Are the Types of Private Mortgage Insurance?

Couple applying for mortgage

There are many aspects to consider before picking the ideal mortgage terms for you. The repayment of the home loan is the primary element every homebuyer looks at. A mortgage repayment encompasses its principal, interest, insurance and taxes. While most people carefully evaluate and bargain for the best interest rate and repayment period, few think of their loan’s insurance. The primary purpose of a mortgage’s insurance is to protect your lender in case you default on your repayments.

In most cases, the mortgage company you choose in Salt Lake City will need you to take out insurance if you pay less than 20% of your property’s value in down payment. Mortgage insurance, however, is not a preserve of those who cannot afford the 20% down payment. You can also opt to pay less than 20% of your home’s cost to save your available cash for repair, furnishing, and remodeling. The insurance policy you will take out, in this case, is private mortgage insurance (PMI). Here are the four PMI categories you can pick from.

Borrower-Paid Mortgage Insurance

This is the most common PMI form and is, in fact, the alluded insurance type if the insurance is unspecified in your loan. It comes as an additional fee in your monthly mortgage repayments and starts after your loan’s closing. You will pay BPMI monthly until your principal repayment is 22% of your home’s overall cost. After this, the lender will cancel the BPMI payments. Alternatively, BPMI payments can be canceled if you accumulate enough home equity by making regular mortgage payments.

Single-Premium Mortgage Insurance

This is paid as a whole at the closing of your mortgage or financed into your mortgage’s overall cost. The primary benefit of SPMI is lowered monthly loan repayments, and thus you might qualify for a higher mortgage. If you, however, refinance or sell your home within a few years of its purchase, this will be a loss for you since the mortgage premium is non-refundable. As such, SPMI is ideal for those planning to keep their homes for more than three years.

Lender-Paid Mortgage Insurance

Your mortgage lender pays this. But you will repay it over your loan’s lifetime at a somewhat high interest rate. You will also not cancel LPMI when you reach a specified equity or principal amount, unlike BPMI. The only option you have to get out of LPMI is mortgage refinancing. LPMI, however, might have low monthly mortgage repayments and enable one to qualify for a higher loan.

Split-Premium Mortgage Insurance

Couple reading mortgage insurance

This is a hybrid of SPMI and BPMI. You will pay part of it as a lump sum during your mortgage’s closing and the balance as part of your monthly loan repayments. Those with high debt-to-income ratios often use this type of mortgage insurance.

The precise cost of the above types of PMI depends on multiple factors. The premium you select, your loan’s term, interest rate and credit score are the primary factors that determine how much you pay. PMI is not charged on FHA loans but rather only on conventional mortgages.