Mortgage Insurance (MI) also known as Private Mortgage Insurance (PMI) is a monthly fee added to your principal and interest payment. Mortgage Insurance protects a lender from any money loss if a borrower were to go in default and have the house foreclosed. Mortgage Insurance does not protect the borrower. Mortgage Insurance premiums are generally applied to conventional conforming loans above 80% loan-to-value.

Lenders also offer lender paid mortgage insurance. The interest rate for lender paid mortgage insurance is higher but the interest is 100% tax deductible.

As of January 1st, 2007 PMI, or Private Mortgage Insurance became tax deductible along with mortgage interest. For this reason, along with the fact that PMI can be removed from your loan once you have 20% equity in your property, PMI may be the better alternative to LPMI, Lender Paid Mortgage Insurance). Ask your mortgage professional what would be best for you.

Be sure to research both options, borrower paid Mortgage Insurance and Lender Paid Mortgage Insurance. A mortgage professional and tax consultant can help you balance out higher tax benefits versus a higher monthly payments.

Mortgage insurance insures the lender against the borrower default and is usually paid for by the borrower.

Many homeowners are eligible for the reduction or removal of mortgage insurance if their home has appreciated in value. They can get an appraisal completed and submit it to their lender to show the new reduced LTV of the mortgage. Many times, the lender will comply with their request.

 

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