MGIC Mortgage Insurance: What You Need to Know

If you’re in the process of buying a home, you may have heard the term “mortgage insurance.” Mortgage insurance is a type of insurance that protects the lender if the borrower defaults on the loan. One of the most popular types of mortgage insurance is MGIC mortgage insurance. In this article, we’ll discuss what MGIC mortgage insurance is, how it works, and why it may be beneficial for homebuyers.

What is MGIC Mortgage Insurance?

MGIC stands for Mortgage Guaranty Insurance Corporation. The company was founded in 1957 and is one of the largest providers of private mortgage insurance (PMI) in the United States. MGIC mortgage insurance is designed to protect lenders in case a borrower defaults on their mortgage.

Unlike many other types of insurance, MGIC mortgage insurance is paid for by the borrower, not the lender. Typically, borrowers who put down less than 20% of the home’s purchase price are required to obtain mortgage insurance. In these cases, MGIC mortgage insurance can help borrowers qualify for a home loan they might not otherwise be able to obtain.

How Does MGIC Mortgage Insurance Work?

When a borrower takes out a mortgage with less than a 20% down payment, the lender may require them to obtain mortgage insurance. The borrower pays a monthly premium to the mortgage insurance provider, like MGIC, to protect the lender in case of default. If the borrower defaults on the loan, the lender can file a claim with the mortgage insurance provider to recoup some of their losses.

MGIC mortgage insurance is typically required until the borrower has paid off a certain percentage of the home’s value. This is known as the loan-to-value (LTV) ratio. Once the LTV ratio reaches a certain level, usually around 80%, the borrower may be able to request that the mortgage insurance be cancelled.

Factors that Affect MGIC Mortgage Insurance Premiums

The amount of the MGIC mortgage insurance premium depends on several factors, including:

• The loan amount
• The LTV ratio
• The borrower’s credit score
• The type of mortgage (fixed-rate, adjustable-rate, etc.)

Borrowers with a higher LTV ratio or lower credit score may have to pay a higher premium than those with a lower LTV ratio or higher credit score. The type of mortgage can also affect the premium, with adjustable-rate mortgages often having higher premiums than fixed-rate mortgages.

Why Choose MGIC Mortgage Insurance?

There are several reasons why a borrower might choose MGIC mortgage insurance. For one, it can help them qualify for a home loan they might not otherwise be able to obtain. Without mortgage insurance, lenders may be more hesitant to approve loans for borrowers with less than a 20% down payment.

MGIC mortgage insurance can also be more affordable than other types of mortgage insurance. According to the company’s website, their rates are often lower than those of government-sponsored mortgage insurance programs like FHA and VA loans. Additionally, MGIC mortgage insurance can be cancelled once the borrower has paid off a certain percentage of the home’s value, which can save borrowers money in the long run.

FAQ

What is the Difference Between MGIC and Other Types of Mortgage Insurance?

MGIC is a private mortgage insurance provider, while other types of mortgage insurance may be government-backed, like FHA and VA loans. MGIC mortgage insurance is typically more affordable than government-backed programs and can be cancelled once the borrower has paid off a certain percentage of the home’s value.

How Do I Know if I Need to Obtain MGIC Mortgage Insurance?

If you are putting down less than 20% of the home’s purchase price, your lender may require you to obtain mortgage insurance. You can ask your lender or mortgage broker for more information about obtaining MGIC mortgage insurance.

How Much Does MGIC Mortgage Insurance Cost?

The cost of MGIC mortgage insurance depends on several factors, including the loan amount, LTV ratio, borrower’s credit score, and type of mortgage. Borrowers with a higher LTV ratio or lower credit score may have to pay a higher premium than those with a lower LTV ratio or higher credit score.

When Can I Cancel MGIC Mortgage Insurance?

MGIC mortgage insurance can be cancelled once the borrower has paid off a certain percentage of the home’s value, usually around 80% LTV ratio. Borrowers can request that the mortgage insurance be cancelled once they meet this threshold.

Conclusion

MGIC mortgage insurance is a popular type of private mortgage insurance that can help borrowers qualify for a home loan they might not otherwise be able to obtain. It can also be more affordable than government-backed mortgage insurance programs and can be cancelled once the borrower has paid off a certain percentage of the home’s value. If you are in the process of buying a home and are considering mortgage insurance, be sure to speak with your lender or mortgage broker about whether MGIC mortgage insurance is right for you.