Mortgage Insurance is required when your loan exceeds 80% of the appraised value or sales price. Mortgage insurance (MI) is also referred to Private Mortgage Insurance (PMI). Both of these mean the same thing.
When a borrower is required to carry MI or PMI, the borrower pays the premiums, but the lender is the beneficiary. The coverage protects the lenders against a default by the borrower. For instance, if a borrower can no longer make their mortgage payments and ends up in foreclosure, the mortgage insurance company ensures that the lender will be paid the balance of the loan payoff.
When doing a conventional loan you have two ways of paying for MI or PMI. One is to make monthly installments that are included in your payment, but will eventually drop off or go away. The other way is to pay for the MI by accepting a higher interest rate. This option typically gives you a lower monthly payment but the rate never gets lowered when the MI would have been eliminated.
For more information please call 919-866-0212 to speak with a Loan Expert at Raleigh Mortgage Group to answer any questions you may have!