Q: What is a mortgage insurance premium? Do I need this?
A: If you are looking at your mortgage bill or statement, you may see a charge for a "mortgage insurance premium." In general, this will be the cost you must pay for a policy which helps to protect your lender against any loss which may occur if you don't make the payments on your loan.
All loans where the borrower has less than a 20 percent down payment or a 20 percent equity stake must have mortgage insurance in order to be eligible to be backed by Fannie Mae or Freddie Mac. Policies attached to these mortgages are often called Private Mortgage Insurance (PMI), since private companies issue the policies. The FHA also has mortgage insurance, but is a self-insuring pool, and all borrowers must contribute an up-front premium as well as regular premiums.
There is a kind of debt or "mortgage life" insurance which is sometimes confused with MI. These are policies which pay part of or even all of the mortgage if you become unemployed, injured or should pass away.
These are voluntary policies, and they would be added on to your mortgage payment in addition to any MI you are required to pay.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.