What Does Lender-Paid Private Mortgage Insurance Mean?

Private mortgage insurance that a mortgage lender pays on behalf of a borrower. Mortgage lenders generally require private mortgage insurance if a mortgage has a loan to value ratio of more than 80%. When a lender pays the private mortgage insurance on behalf of the borrower, they do so in exchange for charging the borrower a higher interest rate. In other words, the borrower still pays for the private mortgage insurance, but does so in the form of a higher interest rate.

Lender Paid Mortgage Insurance is not new to the mortgage business and if you are putting less than 20% down it may be the right solution for you.  LPMI insurance is a single payment mortgage insurance that is funded by the lender.  The Way this MI policy is funded is by using "back end" money to buy your policy.

Lender paid mortgage insurance came to the forefront as it did away with the drawback of the PMI. In case of lender paid mortgage insurance, household of all income levels could avail the benefit of tax deduction. It was not just restricted to households with income less than USD$10,000. The LPMI attracts a lower insurance rate. As such the lender is required to make a lower payment. However, the lender gets back the money from the payments made by the borrower.

Benefits of Lender Paid Mortgage Insurance

1. The payment on this type of loan is usually lower than a no PMI loan or traditional loan with Private Mortgage Insurance.

2. Generally you will be in a better tax situation due to the increase in interest paid.

3. Lender paid mortgage insurance enables lenders to make what the lender considers to be a higher risk mortgage loan that the lender otherwise would not make.

4.Lender paid mortgage insurance also enables borrowers which do not have a large down payment to have access to home ownership.

5.A buyer who has lender paid mortgage insurance may be able to purchase a home with as little as a 3% down payment.

You may not want LPMI if you are planning on putting large annual payments towards principle on your new home.  The higher LPMI rate will stay with you throughout the life of the loan; the monthly MI can go away when you pay your loan down to 80% so your loan would have a lower after it is paid down.

Lender Paid Mortgage Insurance  

* Cost included in the interest rate

* Lower monthly payment

* Potentially larger tax deduction

Risk Management

Mortgage insurance is generally required on a loan for which the loan-to-value ratio is greater than 80 percent. Put another way, it is a loan for which the borrower has not put provided the typical 20 percent down payment. The reason it is used is because a borrower is more inclined to walk away from a house with less equity.

If you have further query please contact Canada Insurance Plan.