The basic understanding of Mortgage Insurance
- Mortgage insurance is an insurance policy that protect a lender in some cases. For example, the borrower defaults on payments, passes away. Or he or she is otherwise unable to meet the contractual obligations of the mortgage.
- Borrowers pay for the mortgage insurance, allowing lenders to grant loans they might not have otherwise.
- The lender could require you mortgage insurance when a down payment is less than 20 percent. Mortgage insurance can help the borrowers get an affordable, competitive interest rate. In exchange for these better terms, the borrower pays insurance premiums each month—usually for at least several years.
Do you pay attention to these things, mortgage interest, insurance paid, and property taxes? They are normally tax deductible for your principal residence. Turbo Tax has confirmed that buying a house is an investment. However the tax deductions may be large enough to lower your tax bill “substantially.” Interest/insurance payments on a residential mortgage may be fully deductible. And of course, mortgage interest/insurance on a second home is the same.
Likewise, selling one home and buying another means you might be able to protect the profits on the sale of your home, because you used it as a principal residence for any two of the last five years.
You could protect up to $500,000 in tax-free profit when filing federal taxes jointly or $250,000 when filing single. This added bonus of tax‐sheltering the profits on the sale of your home may be available to you once every two years. Homeowners who take advantage of these deductions could save hundreds of dollars in annual taxes.
Types of Mortgage Insurance
How many are there types of mortgage insurance? Here are the main three types
- Private Mortgage Insurance (PMI): a type of mortgage insurance a borrower might be required to buy because it is a condition of a conventional mortgage loan. The most common type of PMI is borrower-paid mortgage insurance (BPMI). With this kind, after closing your loan, you pay BPMI every month until you have 22% equity in your home (based on the original purchase price).
- Qualified Mortgage Insurance Premium (MIP): it’s a special policy if you would like to apply for a U.S. Federal Housing Administration (FHA)-backed mortgage. MIPs have different rules, including that the borrowers must buy this type of insurance, regardless of the size of their down payment.
- Mortgage Title Insurance: it’s the policy if you have any problems with the title. Mortgage title insurance protects a beneficiary against losses if it is determined at the time of the sale that someone other than the seller owns the property.
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