What is mortgage insurance?
Question of the week: What is mortgage insurance?
Over the past few weeks I have had several questions regarding the various insurances involved in a real estate transaction. I have decided the best way to address the questions for the next several weeks to have a series on insurance in the Weekly Rate and Market Update, this series will cover home warranty, homeowners’, title, mortgage, and finally mortgage life/disability insurances.
Answer: It is important to note that mortgage insurance does not protect you, it protects your lender.
Back to our question, what is mortgage insurance?
Mortgage insurance is coverage to protect the lender in case the borrower defaults. It is required on all FHA mortgages and most conventional mortgages that are over 80% loan-to-value.
For FHA mortgages, there are two premiums paid for the mortgage insurance, one is paid upfront and added to the loan amount, the other is a monthly premium that is paid for the life of the loan.
For conventional and jumbo mortgages, there are three options for mortgage insurance premiums. The “lender paid” option is what it says, the lender pays for the mortgage insurance premium, this is done through a higher interest rate. Another option is the “upfront” option, where a lump sum is paid for the mortgage insurance, and is typically added to the loan amount. The third, and most popular, option is a monthly premium.
If you have the monthly premium option the mortgage insurance coverage you have likely has the option to remove the mortgage insurance premium if certain conditions are met. Typically, these conditions are that you have made twenty-four consecutive payments on time and your loan to value is below 78 or 80% depending on the policy.
For the lender, after a foreclosure on a loan that has mortgage insurance, the insurer will reimburse the lender for all the costs of the foreclosure, unpaid interest and depending on the coverage and totals perhaps pay down some of the principle on the loan.
It should be noted that in most cases because of the cost and length of time it takes for the foreclosure process that even with mortgage insurance coverage most lenders lose money when a property is foreclosed.
Regular readers of the WR&MU are aware of prior updates that discussed mortgage insurance. For a more in depth look at mortgage insurance, and why I encourage many clients to structure their deals with mortgage insurance here is link to the March 8, 2019 “Why is mortgage insurance a good thing?”
Next week we will discuss mortgage life/disability insurance and what it covers.
Links for prior posts in our insurance series:
Have a question? Ask me!
Flat and flat. That is the news on prices consumers are paying for goods and services as the Consumer Price Index data for Septembers showed prices for the month increasing a scant 0.1% due to lower fuel prices and year-over-year prices remain at a 1.7% growth rate from last month’s year look back. The news is mortgage rate friendly as it lends support to the Fed cutting rates again if the economy shows any signs of slowing, or growing slower.
Up and up. News is that President Trump is meeting with the Chinese trade delegation today. That the President is joining the meetings sends a signal that some type of trade deal is imminent. This has caused investors to leave the safety of bond, and mortgage, investments causing those prices to drop, which results in rates climbing, and stock prices are climbing today. As stated, this is not good news for mortgage rates.
Rates for Friday Ocotber 11, 2019: Even before today’s jump rates have been trending up this week. After our little dip last Friday we have bounced up this week to where rates were the prior three weeks. Market is volatile, do not get caught and lock when you can.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 3.625% Up 0.125%
30 year high-balance conforming 4.00% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
The Weekly Rate & Market Update last week was written and produced in Chattanooga, Tennessee. I was as part of a small contingent from the Rotary Club of Long Beach at the “Large Club Conference.” The conference gathers the president-elects, president-nominees and executive directors from the largest clubs in North America to discuss best practices and processes to keep our clubs strong and help them grow.
I very much enjoyed Chattanooga, it sits on the Tennessee River, is surrounding by very high hills (almost “mountain”) and is on the border with Georgia and a five minute drive from Alabama. We had sticker shock at how inexpensive everything was from beer to barbecue (both delicious).
Also enjoyable was the opportunity to interact for several days with Rotarians from around the country, mostly the Midwest and South, who are dedicated to making their clubs, communities, country and world a better place. Rotary International is the single organization that is responsible for the eradication of polio, taking it on as a cause in the 1950’s and leading the governments and organizations in the fight—and still active in delivering millions of vaccines per year around the world. Rotarians worldwide are concentrating on literacy and education as well as delivering clean, fresh water to villages and communities around the world; our club in Long Beach has raised funds and help drill wells for several villages in Mozambique.
One common desire all of the clubs gathered had was to attract younger members, those in their thirties and forties. The stereotype that many people have is that the clubs consist of old-white-guys, which used to be true but today clubs have women in leadership and striving to have demographics that are match their communities. If you are feeling the need to contribute to your community I suggest you look to a local Rotary club and learn more about the group and what they accomplish. It is very fulfilling for me to be part of a group that have built friendships while also helping others, it can be for you as well!
Have a great week,
Dennis
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog
