Mortgage Insurance or Second Loan

There are two methods of using MI in todays market. The first is borrower paid monthly MI. This is a monthly amount paid into an escrow account with monthly taxes and insurance. After the close, the borrower has the option to call the loan servicer to cancel this payment if the borrower has either paid down the principle quickly or, the loan to value has fallen to 80% of the house value by sheer home appreciation. A new appraisal is usually required, paid for by the borrower of course, and many servicer will not address the issue until at least two years after the transaction has closed. Different loan service companies have different rules on this so, check with your particular loan servicer for exact requirements.

The second method is the Lender Paid MI (LPMI) where the lender increases the rate by a certain percentage to cover the MI. The main argument against the LPMI is that the loan payment can never be reduced. However you have to remember that in a high loan to value situation it will be a long time before you reach less than 80% LTV anyways. So, if you are planning on being in the house for only a few years this can make good sense.

Every situation is different and there are many MI companies out there. To determine what is best for you,  work with a good mortgage professional who understands the nuances of the different MI scenarios.