Average Mortgage Insurance Cost: Everything You Need to Know

If you’re planning to buy a home, you’ve probably heard about mortgage insurance. Mortgage insurance is a type of insurance that protects lenders in case the borrower defaults on the loan. If you’re putting less than 20% down on your home, your lender will likely require you to get mortgage insurance. In this article, we’ll discuss everything you need to know about the average mortgage insurance cost.

What is Mortgage Insurance?

Mortgage insurance is a type of insurance that protects lenders if the borrower defaults on the loan. When you get a mortgage, your lender is taking a risk by lending you money to buy a home. If you don’t make your mortgage payments and default on the loan, the lender loses money. Mortgage insurance helps protect the lender by paying them if you default on the loan.

There are two main types of mortgage insurance:

How Much Does Mortgage Insurance Cost?

The average mortgage insurance cost can vary depending on a few factors, such as:

• The type of mortgage insurance
• The loan amount
• The down payment amount
• The length of the loan
• Your credit score

On average, most borrowers pay between 0.3% and 1.5% of the loan amount in mortgage insurance each year. So, if you’re borrowing $300,000 and paying 1% for mortgage insurance, you can expect to pay $3,000 per year in mortgage insurance premiums.

How is Mortgage Insurance Paid?

Mortgage insurance is typically paid monthly as part of your mortgage payment. The cost of the mortgage insurance is added to your monthly mortgage payment so you don’t have to worry about making an additional payment each month.

Once you’ve paid enough on your mortgage to have 20% equity in your home, you can usually cancel your mortgage insurance. This means your monthly mortgage payment will go down since you won’t have to pay for mortgage insurance anymore.

FAQ

What’s the difference between PMI and FHA mortgage insurance?

PMI is provided by private insurance companies and is required for conventional loans, while FHA mortgage insurance is required for all FHA loans. The requirements for each type of mortgage insurance can be different, so it’s important to know which type of mortgage insurance you have.

How can I avoid paying for mortgage insurance?

If you want to avoid paying for mortgage insurance, you can make a larger down payment or find a loan program that doesn’t require mortgage insurance. Some loan programs, such as VA loans, don’t require mortgage insurance even if you’re putting less than 20% down on your home.

Can I shop around for mortgage insurance?

Yes! Just like any other type of insurance, you can shop around for mortgage insurance to find the best rates. Make sure you’re comparing apples to apples when shopping for mortgage insurance, as different insurance companies may offer different coverage options and rates.

Is mortgage insurance tax deductible?

Yes, in some cases mortgage insurance premiums may be tax deductible. However, there are income limits and other requirements that must be met in order to qualify for the tax deduction. Talk to a tax professional to see if you qualify for the deduction.

Conclusion

Mortgage insurance is an important part of the homebuying process for many borrowers. While it can add to your monthly mortgage payment, it also helps protect your lender in case you default on the loan. By understanding the average mortgage insurance cost and how it works, you can make an informed decision when buying a home.