What is Mortgage Insurance?
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UPDATED: Jul 16, 2021
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Mortgage insurance can allow the homeowner to buy a home sooner with a lower down payment. Not to be confused with mortgage life insurance which pays off the balance of your mortgage when you die, mortgage insurance is required by the lender to protect it against a loan default by the borrower who makes a low down payment less than 20% of the sale price. The borrower pays the premiums, which can be paid monthly or in one large payment. If the borrower defaults, the mortgage insurer pays the lender its money and then seeks to recover from the borrower or forecloses on the property.
Homeowners Protection Act of 1998
Under the Homeowners Protection Act of 1998, the homeowner can require the lender to cancel the mortgage insurance when the homeowner’s loan balance is scheduled to reach 78% of the original value of the home. The homeowner can request the lender to cancel mortgage insurance when the borrower pays down the mortgage to 80% of the home’s original value.