Q: What is MI?


A: MI stands for private mortgage insurance, which was developed to protect lenders and mortgage investors in the event that a borrower should default on a mortgage. Mortgage insurance is typically required on mortgage loans when the borrower is making a down payment of less than 20 percent of the home’s value, or in other special instances where the lender needs additional protection.

Q: Who is responsible for the cost of mortgage insurance?


A: The lender pays the premium for the mortgage insurance, and the cost of that premium is then passed through to the borrower, to be paid as part of the monthly mortgage payment.

Q: Is it possible to cancel mortgage insurance?


A: Yes. There are two types of mortgage insurance cancellation available to borrowers:

1. Automatic cancellation: Borrower-paid mortgage insurance is automatically cancelled by the mortgage servicer when the loan amount is reduced to 78 percent of the original property value (or when the loan reaches its half-life, ex. 15 years on a 30 year mortgage).

2. Voluntary cancellation: Borrowers can request that mortgage insurance be cancelled when they believe that their current loan amount is 80 percent or less of their current property value. An appraisal will be required to validate the value of the property.

Q: Is mortgage insurance (MI) the same as mortgage life insurance or homeowners insurance?

A: No. Mortgage insurance is different from both mortgage life insurance and homeowners insurance. Mortgage life insurance generally pays off the mortgage in the event of the death of the borrower. Homeowners insurance provides coverage for borrowers in the case of damage to the property caused by events such as fire or other hazards. Mortgage insurance protects the lender or mortgage investor from some or all of the losses that can occur when a borrower cannot make the mortgage payments and the loan results in a loss to the lender or mortgage investor.

Q: Is mortgage insurance tax-deductible?

A: 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.

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.