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Mortgage Insurance is insurance that the lender requires you, the borrower, to purchase if you are deemed a high risk for mortgage repayment. Mortgage insurance will pay the lender the balance of your note if you die before completing the payments. You will receive no benefit from this insurance. It is for the benefit of the lender to encourage the lender to take the additional risk to loan to borrowers with little or no down payment or a poor credit score. The premium is collected by the lender in your monthly mortgage payment but they do not sell or manage the policy. There are underwriters for these policies. Keep in mind that these insurance payments will increase your monthly payment substantially.

Is the mortgage insurance mandatory? Yes, if you are financing 80% or more of the value of your home. With government backed loans the amount is more than 80% of the value of your home, but the insurance is still mandatory. In other words, if you are applying for a government backed loan you may not have to put as much down, but the insurance is mandatory nonetheless.

Do you want to avoid paying for mortgage insurance? You have a few options if so. One option is to put at least 20% down on the property. Mortgage insurance is not mandatory in that case. Another option is to apply for a piggy back loan or an 80/10/10 loan. This is a loan that requires 10% down payment, 10% loan, and 80% loan. The loan for 10% is to apply an additional 10% to your down payment so that you are exempt from the insurance requirement. You will have two loan payments, but the aggregate amount of those payments will be less than the mortgage insurance premium. If you are applying for a government backed loan, ask for a shorter pay back period. Your mortgage payment will be higher, but the higher rate will be invested in your property and not toward mortgage insurance that benefits someone other than you. You will be debt free sooner with a shorter note on the property.

Your premium is based on conditions like were mentioned above. If you are approved for a government backed loan and your payment term is less your mortgage insurance will be less. The longer you pay on the note, the higher the premium. If you are applying for a conventional note the premiums will be higher as a general rule than those of government backed mortgages. The premium amount of conventional notes is based on the amount of your down payment, the amount that you finance, or the amount that you refinance.

If you have closed on a conventional loan and you want to drop the mortgage insurance coverage you can do so if you meet the lenders conditions. One way is to make payments until you have achieved a 20% rate of equity in the home. At that time you can petition the lender for removal of the mortgage insurance requirement. Another way is to provide the lender with a current appraisal on the property that shows an increase in value of the home.

Homes appreciate over time as a general rule. If you have paid for a while on the home and believe that it is now worth more than when you closed, purchase a new appraisal on the home and submit it to the lender with your request to drop the insurance. If you remodeled extensively and you know that you have increased the value of your home, invest in another appraisal to use when you request exemption from the insurance requirement.