WHAT IS PRIVATE MORTGAGE INSURANCE?
Private mortgage insurance (commonly referred to as “MI”) allows a lender to offer a mortgage to you even if you are making a down payment of less than 20% of your home’s value. MI protects your lender against a loss if you default on your mortgage payments.
WHAT TYPES OF MI DOES ESSENT OFFER?
We offer borrower-paid MI (BPMI) standard and deferred monthly premium plans. With standard BPMI, you pay the initial MI premium at closing. With deferred BPMI, you pay the initial premium with your first mortgage payment. We also offer a single BPMI premium option, which lets you make a one-time, upfront MI payment at closing or to finance your payment into your loan. We also offer lender-paid (LPMI) and split premium options.
HOW ARE LOANS WITH ESSENT MI DIFFERENT FROM FHA LOANS?
Like Essent, FHA also offers MI on low-down-payment loans. However, there are some key differences to keep in mind:
- We are a private mortgage insurer funded through private investment. FHA is a government agency funded by taxpayers.
- We offer multiple MI premium plans to meet your individual needs. FHA only offers one MI premium plan.
- We offer MI for loans as low as 0% down. FHA’s minimum down payment is 3.5%.
- Our MI can be canceled when your equity reaches 20%. MI on most FHA loans can never be canceled.
Finally, depending on the type of loan, your Essent MI premiums may actually be lower than FHA.
IS MI THE SAME AS MORTGAGE LIFE INSURANCE OR HOMEOWNERS INSURANCE?
No. Mortgage life (also known as mortgage credit life) insurance generally pays off a mortgage in the event of your death. Homeowners insurance provides coverage for you in the case of damage to your property caused by events such as fire or other hazards.
AM I RESPONSIBLE FOR PAYING MI?
BPMI typically passes the cost of MI premiums through to you, the borrower, as a component of your monthly mortgage payment. LPMI typically passes the premium costs through in the form of a slightly higher interest rate on your mortgage or through a one-time fee. In some cases, the premiums may be assumed by your lender.
Your lender or loan servicer is responsible for forwarding your MI premium payments to Essent. (Your lender makes the loan while your loan servicer collects your loan payments and manages your escrow account, if applicable. Your lender and loan servicer are not always the same company.)
You should contact your loan servicer directly with questions about your mortgage or MI premiums.
CAN I REMOVE OR CANCEL MY MI?
Yes. According to the federal Homeowners Protection Act of 1998 (HPA):
- You can ask your loan servicer to cancel your BPMI when you believe the unpaid balance on your loan is 80% or less of your original property value. Your cancellation request is subject to the HPA requirements and may necessitate a new property appraisal to verify that your home’s value has not declined.
- Your loan servicer must cancel your BPMI automatically when the unpaid balance on your loan is scheduled to reach 78% of your original property value, provided your loan is current, or when your loan reaches its halfway point (e.g., 15 years on a 30 year mortgage).
Please note that MI cancellation under the HPA only applies to loans with BPMI for single-family, primary residences. (Loans with LPMI can only be canceled when they are paid off or refinanced.) Some states, notably NY, also have cancellation laws that predate and can supersede the HPA. Contact your loan servicer directly to ask about canceling your BPMI.
Read Removing PMI to learn more.
ARE MY MI PREMIUMS TAX DEDUCTIBLE?
If you itemize your tax deductions and have paid or accrued MI premiums on a mortgage contract written after January 1, 2007, you are eligible to deduct your premiums on your federal income taxes, subject to certain income restrictions.
Read PMI Tax Deductibility Q&As for more information.
Important: You should consult your tax adviser concerning applicability of this deduction to your particular circumstances under the Internal Revenue Code and the laws of any other taxing jurisdiction.