Significance

• Mortgage insurance is a fee paid by the borrower each month to be held in an escrow account in the event that the borrower defaults on the mortgage. This amount is payable to the lender who originated the loan upon foreclosure of the property to protect them from loss.
  
  

Types

• For borrowers making less than a 20 percent down payment, mortgage insurance is assessed at 0.5 percent of the total sales price of the home payable each month. This payment is automatically added to the monthly mortgage payment.
  
  

Considerations

• Mortgage insurance is normally only payable into escrow for the first five years of the loan or until at least 20 percent escrow is obtained on the property. It is not common to pay mortgage insurance for the life of the loan.
  
  

Benefits

• Mortgage insurance benefits consumers by enabling lenders to relax down payment guidelines and offer more loans at better rates. It also benefits lenders to protect them from substantial losses due to mortgage default and foreclosure expenses.
  
  

Alternative

• For buyers who do not want the extra expenditure of mortgage insurance payments each month, they can place 20 percent of the sales price as a down payment on the property they are purchasing and forgo the need to pay mortgage insurance completely.
  
  

Planning

• Obtain a quote on monthly payment with mortgage insurance factored in prior to putting an offer in on a property. The added expense can be more than what a budget can handle and might create a need to look at properties at different price points.