Split Premium Mortgage Insurance

What is mortgage insurance?

When your downpayment is less than 20% on conventional loans the lender has less equity on the house to serve as collateral for the loan. In this case the lender will require that the borrower pay for a Mortgage Insurance (MI). MI is provided by a third-party company and will cover part of the principal (12 to 35% coverage depending on the LTV) in case of default. There are government programs that require less coverage (please see example bellow and ask for more details in the comments).

What is split premium mortgage insurance?

Mortgage insurance can be upfront or monthly or both.

FHA loans require 1.75% upfront premium and 0.85% monthly premium on 96.5% LTV loans (3.5% downpayment). Conventional loans do not require upfront mortgage insurance and the rate for the monthly mortgage insurance is 0.66% for FICO of 720-740. Split premium on conventional loans is when you pay some upfront reducing your monthly premium accordingly.

What is financed upfront mortgage insurance?

FHA loans allow you to finance the upfront mortgage insurance. So, when you buy a house you do not have to pay for it right away, as it is added to the loan.

Please see the table below for a comparison between FHA and conventional.

 

celso-neves-splitMI

 

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