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Debbie Siegel's Mortgage Minute
What is Mortgage Insurance and Do You Need It?
Mortgage Insurance (MI) is required insurance on mortgage loans that have
less than a 20% down payment. It covers the lender against a potential
default by the borrower, and is a premium paid - by the borrower - to
cover the bank's added risk.
MI is often confused with life insurance or home owner insurance. A
critical difference however, is that MI protects the bank and in no way
protects the borrower. The only benefit the borrower receives is the
ability to buy or refinance a house without putting 20% down.
When looking at your options, it is important to remember that MI is not
tax deductible. The IRS allows you to deduct the interest of the mortgage
itself, but not the MI, which falls under the same category as services
provided by the lender (just like the appraisal fee).
There are a two key points to remember about MI. First, it can be dropped
once you reach 20% equity in the property. You can have the property
re-appraised and submit that to the lender. Second, you can avoid MI all
together by taking out two separate loans: A 1st mortgage for 80% of the
value and a second mortgage for the rest.
* Next 37 17 investors only!
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
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