Lender paid mortgage insurance is issued by a private company that protects the mortgage lender against some or all of the loss caused by a default on a mortgage loan. Lender paid mortgage insurance is generally required by lenders for borrowers with a down payment of less than 20% of the home purchase price. The lender pays the mortgage insurance premium for lender paid mortgage insurance. The mortgage insurance premium is usually built into the interest rate on the mortgage loan.
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. Lender paid mortgage insurance also enables borrowers which do not have a large down payment to have access to home ownership. A buyer who has lender paid mortgage insurance may be able to purchase a home with as little as a 3% down payment.
A borrower does not have the right to request that lender paid mortgage insurance be cancelled. Compare to Borrower Paid Mortgage Insurance where the borrower has the right to request that the private mortgage insurance be cancelled. Lender paid mortgage insurance terminates only when the mortgage loan is paid off, refinanced, or is otherwise terminated.
Lender paid mortgage insurance law is very complex and varies by state. A mortgage attorney can help you determine whether lender paid mortgage insurance or borrower paid mortgage insurance is right for you. A finance lawyer can also protect your rights and interests, can help you negotiate your lender paid mortgage insurance contract, and can determine whether cancellation or termination is an option available to you.