What is Mortgage Insurance Premium

Everyone dreams of one day living in a home he can call his own. For some people, this remains a dream all through their lives; others are able to turn this dream into reality. Today with the economic realities of our times, increasing unemployment and high cost of living, it is becoming increasingly difficult for individuals to save a considerable amount of money for home purchase.

For those who can afford to save enough, or convert an asset for home purchase, they are truly blessed, however, majority of the people must seek for funds from lenders and financial institutions to be able to pay or buy their own houses. For people in this category, they need a mortgage. Basically, mortgage insurance premium often referred to as private mortgage insurance are insurance cover for the mortgage. Not every one who takes out a mortgage is required to go for a mortgage insurance. However, for mortgagors with down payments of less than 20% on the value of their homes, this insurance is required. And like all other forms of insurance, premium are payable. The monthly premium varies and depends on the amount borrowed, but usually might be less than $50 a month.

The Home owner’s protection Act has made private mortgage insurance to be automatically cancelled once payment of 22% of the value of the home has been paid. This means that once the borrower has succeeded in paying 22%, the lender is mandatory required to cancel the mortgage insurance payments without any form of intervention from the borrower. However, on his own, the borrower can request for cancellation on paying up to 20% of the value of the home. But for loans considered as high risk, the mortgage insurance may be required until 50% of the loan has been repaid.

Again in order to encourage more Americans own their own homes, mortgage insurance premiums are now tax deductible. This means whatever amount paid as mortgage insurance premium, can be deducted before arriving at the adjusted gross income (AGI) while filing with IRS. Though this concession is given only to individuals earning less than $100,000 p.a., if filing separately, or $50,000 if they are filing as a couple. It is also partially deductible for people on income of less than $109k.

From the foregoing, the question what is mortgage insurance premium can be answered by stating that it is the premium on the mortgage paid by mortgagors to cover lender’s funds from any unforeseen occurrence, if payments and foreclosures are not enough to cover their funds outlay.