Mortgage insurance can be a powerful instrument when buying a new home, but unfortunately, very few new homebuyers understand everything that it can do for them. Lenders love when buyers purchase mortgage insurance, also known as private mortgage insurance (PMI), because it provides them with a great deal of assurance, and it reduces the risk they are taking by originating the mortgage. All homebuyers stand to benefit from a PMI policy, but first-time buyers may receive the most benefits because they do not have a previous mortgage history and may be considered higher risk than those who have made timely payments for several years. With loans such as a no-deposit home loan you can
Following are the top five reasons why it pays to have mortgage insurance:
1. Mortgage Insurance Can Help You Qualify for a Home Loan
If you have been turned down for a home loan in the past, mortgage insurance may help you qualify for a new loan. Depending on your credit history and other qualifications, a mortgage insurance policy may be the one missing factor on the road to approval.
2. Mortgage Insurance Can Lower Your Down Payment
One of the greatest benefits of mortgage insurance is that most lenders will lower their usual down payment percentage for borrowers who have purchased a policy. Instead of requiring a buyer to put down 20 percent of the home’s purchase price, the lender may only require 5 percent to 10 percent.
3.Lenders May Be Willing to Lower Interest Rates
In addition to lowering the down payment, some lenders may lower the interest rate on a mortgage when mortgage insurance is purchased. However, chances at receiving a lower interest rate are greatly improved for buyers who can make higher down payments.
4. Mortgage Insurance May Be Tax Deductible
As of the 2013 tax year, PMI premiums are fully tax deductible by anyone earning $100,000 or less, and a percentage is deductible for those earning more than that up to the maximum limit. However, a few other limitations do apply, so it is important to do some research on your specific situation.
5. Mortgage Insurance Can Be Cancelled
Mortgage insurance does not have to last for the entire term of a home loan. Most policies can be cancelled at any time after a homeowner has 20 percent equity in the home, and the policy may cancel automatically when 22 percent equity is reached. When mortgage insurance is cancelled, most people experience a lower monthly mortgage payment.