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Mortgage insurance. What is it? Do you need it? Who does it cover? All great questions - let's get into it!

When you purchase a home with less than 20% down most lenders require mortgage insurance on your loan. This insurance coverage protects the lender in case you stop making payments on the note. The amount of the monthly payment for the coverage varies depending on the price of your home and how much you put down. The bigger the down payment, the smaller the cost of the mortgage insurance.

Keep in mind this insurance does not protect you as the buyer. You will also need separate homeowners' insurance that will cover your home and belongings.

One way to tackle mortgage insurance is through a loan option that offers Lender Paid Mortgage Insurance (LPMI). With these loan products the lender covers your mortgage insurance in exchange for a higher interest rate on your loan. While a higher interest rate may sound like a bad idea, this can actually be a GREAT option for some buyers. Here's a quick example of how this can work in your favor:

$250,000 home with 10% down, 30 year fixed mortgage

Option 1: 4.5% with mortgage insurance

Principal & Interest: $1140.04

Property Tax+Homeowners' Insurance: $175

Mortgage Insurance: $75.25

Total Payment: $1390.29

Option 2: 4.875% with Lender Paid Mortgage Insurance

Principal & Interest: $1190.72

Property Tax+Homeowners' Insurance: $175

No Mortgage Insurance Total Payment: $1365.72

With the LPMI your payment is actually lower and you get a bigger tax benefit. Interest paid on your mortgage is tax deductible** but mortgage insurance is not. Because you are paying more interest, your tax deduction is larger. This can be especially beneficial to self employed borrowers looking to maximize their tax deductions.

For much more in-depth information about mortgage insurance, check out this fantastic article from the CFPB:

As always, give me a call to discuss your specific situation and how we can find the best loan product to suit your needs!

**Please consult your tax preparer for details on the mortgage interest deduction and how it can affect your specific tax situation!


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