United Guaranty Insights
Private Mortgage Insurance Offers Big Savings Up Front and over the Life of the Loan
By Chris Clement, Senior Vice President-Field Production
United Guaranty Corporation
Posted on May 22, 2015
I'll start with a simple fact: Borrowers who choose private mortgage insurance (MI) can save $26,519.46 over FHA during the life of a $200,000 loan—with a 5 percent down payment.
It's something that's been largely overlooked in all the attention the press devoted to the FHA's 37 percent rate cut in January.
However, with FHA insurance, borrowers are locked into paying private MI for the entire life of the loan when the down payment is less than 10 percent.
Federal law requires private MI to cancel automatically when the borrower has paid down the balance to 78 percent of the original value—and the borrower can request cancellation when the balance reaches 80 percent if certain additional conditions are met. (According to Bankrate.com, it takes less than 10 years for an average borrower to reach the 78 percent threshold.)
With that in mind, here's a look at the life-of-loan cost of mortgage insurance on a typical $200,000 loan:
- FHA: $36,379.46
- Private MI: $ 9,860.00 (borrower-paid monthly)
In addition, many borrowers will also pay a lower monthly payment with private MI. With 5 percent down on a $200,000 loan, borrowers with good credit (720) would pay:
- $141.67 for FHA, plus $3,500 upfront (FHA requires an upfront payment of 175 basis points).
- $96.67 monthly for United Guaranty borrower-paid monthly MI.
Over five years, the difference adds up to $6,444 less with United Guaranty.
So, if you're providing advice to a home borrower or you're looking to purchase a home yourself, make sure you compare all of the private MI costs. Our website has information on saving more upfront and over the life of the loan, or you can contact your United Guaranty Sales Representative.
As Senior Vice President of Field Production, Chris Clement is responsible for field production for United Guaranty's Domestic Group. He most recently was Senior Vice President–National Accounts for United Guaranty's Domestic Residential Group, in which he managed support for national lenders and their market strategies for all regions of the country.
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