Mortgage Insurance Premium Clause
A Mortgage Insurance Premium Clause is a provision commonly found in mortgage agreements that outlines the requirement for the borrower to pay mortgage insurance premiums. This insurance is typically required when a borrower makes a down payment that is less than 20% of the home’s purchase price, providing protection for the lender in case the borrower defaults on the loan.
The clause specifies the amount of the premium, the frequency of payments, and the conditions under which the mortgage insurance is necessary. It usually includes details about how the premium can be paid—either as a one-time upfront fee or as part of the monthly mortgage payment.
For example, if a borrower purchases a home priced at $300,000 with a down payment of only 5%, the mortgage lender may require the borrower to obtain private mortgage insurance (PMI). The Mortgage Insurance Premium Clause would detail the terms of the PMI, including the total premium cost, which could be around 0.5% to 1% of the loan amount annually.
Furthermore, the clause may also explain the circumstances under which the mortgage insurance can be canceled, typically once the borrower has built up sufficient equity in the home—often when the loan balance falls below 80% of the property’s value. This cancellation process can provide significant savings for the borrower once the required conditions are met.
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