May 20, 2022 | Sexton Real Estate Group
Mortgage insurance is a must for many homebuyers in Northern California. Here are seven fast facts about it in 2022.
Fact #1: It Protects The Lender If You Can’t Make Your Payments
If you’re unable to make your mortgage payments, mortgage insurance will protect the lender by paying out a claim. This claim can cover the outstanding balance on your loan, as well as any related legal or foreclosure fees. Mortgage insurance is typically required if you have a high-risk loan, such as an adjustable-rate mortgage. It’s also common with loans that have a small down payment or a high loan-to-value ratio.
Mortgage insurance is one way that lenders can protect themselves from borrowers who may default on their loans. If you’re unable to make your mortgage payments, the mortgage insurer will pay out a claim to the lender. This claim can cover the outstanding balance on your loan, as well as any related legal or foreclosure fees. Mortgage insurance is typically required if you have a high-risk loan, such as an adjustable-rate mortgage. It’s also common with loans that have a small down payment or a high loan-to-value ratio.
Fact #2: Mortgage Insurance Does Not Protect The Borrower
Mortgage insurance is designed to protect the lender in the event that the borrower defaults on their loan. The idea is that if the borrower can’t make their payments, the mortgage insurance will pay off the loan and the lender won’t lose any money.
However, mortgage insurance does not protect the borrower at all. If you default on your loan, the mortgage insurance company will pay off the loan, but you will still owe them the money. They may also sue you for any deficiency (the amount of money they paid out minus what you owe on your loan). So while mortgage insurance protects the lender, it offers no protection whatsoever to the borrower.
Fact #3: Mortgage Insurance In Northern California Is Different Than Other States
Mortgage insurance in Northern California is unique because the state has its own risk-based pricing system. This means that insurers consider the specific characteristics of the home and borrower when setting rates. This results in rates that can vary significantly from one insurer to another.
For example, a home in San Francisco with a high loan-to-value ratio may have a higher mortgage insurance premium than a home in Los Angeles with a lower loan-to-value ratio. This is because lenders view homes in San Francisco as being riskier than homes in Los Angeles.
Northern California also has its own set of rules and regulations when it comes to mortgage insurance. These rules are designed to protect borrowers and ensure that they get the best possible deal.
Fact #4: Not All Lenders In Northern California Require Mortgage Insurance
Not all lenders in Northern California require mortgage insurance. Some lenders may allow you to avoid paying for mortgage insurance if you make a larger down payment on your home. You can also ask your lender about possibilities for refinancing in the future to get rid of mortgage insurance.
Fact #5: You Have To Pay Mortgage Insurance Until You’ve Paid Off Your Loan
You usually have to pay mortgage insurance if you put down less than 20% when you bought your home. If you have an FHA loan, you’ll have to pay both an upfront premium and monthly mortgage insurance premiums. The upfront premium is 1.75% of the loan amount, and the monthly premium is typically 0.85% of the loan amount. You can get rid of mortgage insurance once you’ve paid off your loan or built up enough equity in your home.
Fact #6: You Can Choose Either Private Mortgage Insurance Or Government-backed Mortgage Insurance
There are a couple of key differences between private mortgage insurance (PMI) and government-backed mortgage insurance, such as the type of lender that offers each product and the benefits they provide.
With PMI, the insurer is a private company that helps protect the lender in case of borrower default. Government-backed mortgage insurance, on the other hand, is provided by agencies like the Federal Housing Administration (FHA) or Veterans Affairs (VA).
Each type of mortgage insurance has its own set of pros and cons, so it’s important to compare them before deciding which one is right for you.
Fact #7: You May Cancel Private Mortgage Insurance
The quickest way to cancel private mortgage insurance is to refinance your mortgage. Once you have built up at least 20 percent equity in your home, you can shop around for a new loan with a lower interest rate. If you qualify, this will not only save you money on your monthly payments, but it will also help you cancel private mortgage insurance.
Another way to get rid of private mortgage insurance is to make extra payments on your principal balance. By doing this, you will build up equity in your home more quickly, and once you reach 20 percent equity, you can petition your lender to cancel the insurance. Making biweekly mortgage payments is one way to make extra payments on your principal balance without breaking the bank. You can also make a lump-sum payment towards your principal balance once a year.
If you have the means, this is an excellent way to get rid of private mortgage insurance quickly. Lastly, you can simply wait for your loan term to expire. Once you have made enough payments on your loan, you will reach a point where the private mortgage insurance is automatically canceled.
So, what does all this mean for you as a borrower in Northern California? If you’re getting a mortgage loan in the near future, be sure to call us and we can help walk you through the process. And remember, mortgage insurance is required by law in most cases here in California, so don’t forget to factor that into your budget!
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