For many people, saving 20 percent of the home price for a down payment can be the most significant barrier to buying a home. Private mortgage insurance (MI) can help you obtain a mortgage with a smaller down payment—as little as 3 percent in some cases. Benefits of MI include:
Mortgage Insurance Allows for Flexible Payment Terms
One of the advantages to mortgage insurance is that it can be paid in multiple ways, giving the borrower greater flexibility. Essent offers monthly, single lump-sum, or annual premium plans, as well as lender-paid mortgage insurance programs.
Mortgage Insurance May Be Tax-Deductible
The full cost of mortgage insurance on qualifying loans can be deducted by households with adjusted gross incomes of $100,000 or less. A percentage may be deducted by households earning up to $109,000. Lender-paid mortgage insurance premiums are not deductible by homeowners; however, the home mortgage interest the borrower pays to the lender to cover that cost typically is. Consult your tax advisor.
Borrowers should consult their tax advisors concerning applicability of this deduction to their circumstances under the Internal Revenue Code and the laws of any other jurisdiction. This information is not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties.
Mortgage Insurance Is Cancellable
Borrower-paid mortgage insurance does not last for the life of the loan; in fact, the insurance coverage can be cancelled when the borrower attains 20 percent equity. Equity can be built by paying down the mortgage principal, rising home values due to favorable market conditions, or home improvements. Mortgage insurance also cancels automatically—when either the borrower’s equity reaches 22 percent through normal amortization, or the halfway point of the loan term is reached. The cancellation of mortgage insurance may reduce the borrower’s monthly mortgage payment or result in a refund of a portion of the mortgage insurance premium (depending on the mortgage insurance premium program selected).
