Mortgage insurance serves as a security for the lender, not the borrower, in case of default of a mortgage. The mortgage insurance company repays the lender, fully or partly, for any losses if the home is indebted. A lender makes you acquire mortgage insurance for loans that involve less than twenty percent equity. While mortgage insurance primarily favours the lender, it also enables potential buyers to get a home with a reduced down payment.

You can utilize the facility of mortgage insurance if you are not able to put in thousands of dollars for making the down payment of a home. When a potential buyer cannot afford to pay a huge down payment, it is the mortgage insurance that protects the investors or lenders from the possible non-payment of a mortgage.

Mortgage Insurance Premiums

Many lenders provide a group of different options to pay the mortgage insurance premiums. One of the most common techniques is a monthly premium. It requires a borrower to pay a small amount of premium along with each monthly payment. Another option is a single premium that requires you to pay a large amount at closing instead of making small monthly payments. Monthly premiums can work better for you if you intend to acquire a mortgage for a few years.

Private Mortgage Insurance

Homeowners are required to acquire private mortgage insurance when they make a down payment which is somewhat less than 20% of the evaluated value. PMI actually enables them to get a mortgage with a reduced down payment by protecting the lender against any default on the mortgage. The charges of private mortgage insurance vary according to the size of the loan as well as the down payment.

You can stop paying for mortgage insurance when your equity increases above 20%.  In this aspect, you just need to ask your lender how you can annul your private mortgage insurance. The lender will certainly need proof to ensure that your equity has exceeded 20% and is fully protected.

How to Avoid Paying for Mortgage Insurance

If you do not have the required 20% down payment, you can utilize different techniques to avoid paying for mortgage insurance. There are some lenders who let go the condition of mortgage insurance if a buyer agrees to a mortgage with a higher interest rate. The increased rate generally depends on the extent of down payment.

Many people may find mortgage insurance a pointless monthly expenditure when buying their first home. As a matter of fact, its consumer friendly nature enables almost everyone to easily purchase a home.