YOU ASK:

What is MIP mortgage insurance?

WE ANSWER:

MIP or mortgage insurance premiums are what you pay for an insurance company to cover your mortgage. It covers government secured loans, like mortgage loans provided by the Federal Housing Authority or FHA.

Private mortgage insurance is required for borrowers who did not pay 20% or more on their down payments when they closed the transaction to buy a house. Mortgage insurance is the lender's way of protecting itself so that the risks involved in lending money to you is not as great. The bank's exposure would be covered by insurance so that when you fail to pay for the mortgage, the bank will claim for the mortgage insurance and that will cover the full repayment of the bank's investment.

For the mortgage insurance premiums (MIP) that serves FHA or HUD loans, an upfront payment is charged at the closing of the real estate sale. The buyer can opt to either roll this into the loan amount or pay it outright. There is also a monthly premium as well. For those buying a condo unit, though, there will only be monthly MIPs required.

MIP may be refundable, depending on the situation. You can check the HUD website and enter your FHA case number to check if you are eligible for a refund on your MIP. Refunds are based on when the loan was originated, how much down payment you made, as well as the length of the loan (the number of months' amortization).

MIP may be eliminated since this will just mean an extra expense for the home buyer. Thus, it is recommended that you cancel PMI as soon as you are allowed. MIP may also not be considered deductible for your taxes, especially if you belong to the high tax bracket.

The government has now made it easier for you to cancel your MIP mortgage insurance. It has provided several safeguards so that you are duly informed and that you are able to cancel the mortgage insurance as soon as possible.

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