Lender paid mortgage insurance is when the mortgage lender obtains the required private mortgage insurance (PMI) coverage for a borrower and then passes on the cost to the borrower through a higher interest rate on the loan.  Lender paid mortgage insurance or an LPMI policy is a form or method of paying for mortgage insurance.  Private mortgage insurance, which is required on most conventional mortgage loans where the loan amount is greater than 80% of the home’s value, can be paid for in several different methods.  Lender paid mortgage insurance is just one of the means of paying for or obtaining the necessary mortgage insurance needed to secure a home loan.

A home loan borrower may benefit from the lender paid mortgage insurance option due to lower upfront costs for the mortgage insurance fees since all costs to obtain the required insurance are paid through via the elevated or increased mortgage interest rate.  Unlike traditional borrower paid mortgage insurance, however the policy cannot be cancelled and the mortgage rate cannot be reduced at a later date.  

An additional benefit of lender paid mortgage insurance is lower monthly payments for the insurance.  Generally, lender paid mortgage insurance results in a smaller monthly mortgage payment increase per month as compared to traditional borrower paid monthly mortgage insurance.  A final benefit to this method of paying for mortgage insurance costs is the tax advantage.  By being rolled into the mortgage rate, lender paid mortgage insurance gives a tax advantage to consumers, as it falls into the mortgage interest deduction.  the tax deduction currently allowed for LPMI is set to expire at the end of the year, unless Congress acts to extend it.

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