Suneet Singal on mortgage insurance

Suneet Singal’s published work is in real estate and corporate finance, and mortgage insurance is one of the places those fields meet a household budget. Mortgage insurance, in the conventional form called private mortgage insurance, protects the lender if the borrower does not repay. The borrower usually pays for it. It is not a down payment, it is not hazard insurance on the house, and it is not life insurance on the borrower. This entry explains when the product tends to appear, how it differs from the mortgage insurance on an FHA loan and from the funding fee on a VA loan, and where to read a cancellation rule instead of remembering one. It does not quote a current premium. Premiums belong to a Loan Estimate or to the servicer’s notice. The page is a reference for readers who need the vocabulary. It is not a judgment about whether a particular borrower should accept a loan that carries the insurance.

The protection runs to the lender

Private mortgage insurance is an insurance contract written so that the lender, or the investor who owns the loan, has a claim if the borrower defaults and the collateral does not cover the debt. The household’s name is on the premium. The household is not the party the policy is designed to pay. That single fact clears up a common mix-up. A buyer who hears “insurance” may think the policy repairs the house or pays the family if something happens to the borrower. Hazard insurance repairs or replaces the property under its own policy. Mortgage insurance does a different job, and only when the conditions of that policy are met after a default. The Consumer Financial Protection Bureau’s question-and-answer on private mortgage insurance is the short public statement of this point. This entry follows it and does not replace it.

Because the protection is for the lender, the lender is the party that requires it. The requirement is usually tied to risk, and on a conventional loan the visible marker of that risk is a loan-to-value ratio above the program’s threshold. A down payment of 20 percent is the threshold people repeat. It is a common conventional threshold, not a description of every mortgage in the country. A reader who wants the down-payment side of the same fact should use the entry on what a down payment changes. This page stays with the insurance once the threshold has been crossed.

The premium is a price for that protection. It may be collected every month, collected once at closing, split between those two, or paid by the lender and recovered in the interest rate. Those are different cash patterns. A monthly premium increases the payment the household sends. An upfront premium increases the cash due at closing, or increases the loan if the program allows it to be financed. A lender-paid arrangement can make the insurance line disappear while the note rate rises. Comparing two loans by looking only at the rate, or only at the monthly insurance line, will miss the arrangement that put the cost somewhere else. The Loan Estimate is the document that shows the arrangement in one file.

Where the line shows up on the form

The Loan Estimate has a place for mortgage insurance inside the projected payments, and the closing-cost pages can show an upfront premium if one is being charged. The projected-payments section is worth reading column by column. A later column may show a lower payment in the year the form expects mortgage insurance to end. That column is a projection under the form’s assumptions. It is not a promise that the servicer will cancel the premium on the date a reader prefers. Read the years printed above the columns before treating the first payment as the payment for the entire term.

A Closing Disclosure later in the process restates the transaction as it stands near signing. If the premium, the rate, or the loan amount has changed since the Loan Estimate, the disclosure is where the change is supposed to be visible. This page does not set the legal timing of that disclosure. The CFPB’s owning-a-home material describes the sequence. What the reader can do without a legal citation is mechanical: put the Loan Estimate and the Closing Disclosure next to each other and see whether the mortgage-insurance line moved, and whether a change in that line was offset by a change in rate or in cash to close.

A worksheet that omits the line is not a payment. Take the principal and interest from the form, add the mortgage insurance from the form, and add the taxes, hazard insurance, and any association dues the form or the contract states. The sum is the housing payment those documents support. A friendlier number that includes only principal and interest is a different concept, and it should be labeled as principal and interest so it is not repeated as the amount the household will owe each month. The entry on interest rates and the monthly payment goes further into that split. Mortgage insurance is one reason the split matters.

Conventional insurance is not the whole menu

Private mortgage insurance is the conventional product. An FHA loan uses FHA mortgage insurance, often discussed as an upfront premium and an annual premium collected monthly. The cancellation behavior of that insurance is governed by FHA rules and can depend on when the loan was made and on the loan-to-value. It is a mistake to take the conventional 80 percent and 78 percent schedule, described below, and apply it to an FHA case number. The FHA documents for that loan, not a conventional explainer, state whether and when the premium ends.

A VA loan uses a funding fee, with exemptions the Department of Veterans Affairs defines. The fee is not private mortgage insurance, even though both are costs that can appear because the borrower is not putting 20 percent down. Some borrowers qualify for an exemption. This page does not list the exemptions, because a partial list would look complete and would not be. The VA materials for the loan are the source. A USDA loan uses a guarantee fee with its own structure. The same instruction applies. Name the product on the estimate before using any sentence from this page about cancellation.

Lender-paid mortgage insurance needs its own label too. If the lender pays the insurer and prices that cost into the rate, the monthly bill may show no insurance line at all. The Homeowners Protection Act rights that borrowers use to cancel borrower-paid premiums do not automatically become a right to rewrite the interest rate downward later. A reader looking at a higher rate and no insurance line should ask whether the rate includes lender-paid insurance, and should ask what, if anything, can be removed later. The answer belongs to the loan documents. This entry only insists that the question be asked before the two offers are called identical.

Cancellation is a rule with conditions

For many borrower-paid private mortgage insurance policies on loans covered by the Homeowners Protection Act, the CFPB describes two milestones tied to the original value of the home. A borrower who is current can ask the servicer to cancel the premium when the balance is scheduled to reach 80 percent of that original value. The premium must terminate automatically when the balance is scheduled to reach 78 percent, again if the borrower is current. Other conditions apply. Some loans fall outside the statute. A cancellation based on a new appraisal, or on extra payments that reduce the balance faster than the original schedule, is a further path the CFPB page and the servicer’s notice describe. This summary is not that notice.

Original value is not today’s market value. A rise in neighborhood prices does not, by itself, move the scheduled 78 percent date. The scheduled date comes from the amortization schedule and the value used when the loan was made. A borrower who wants a different date has to use whatever current-value process the servicer and the statute actually allow, which may include an appraisal the borrower pays for, and which may be declined if the conditions are not met. None of that is a reason to guess the date from a house-price index. An index is a research series. A cancellation date is a servicer calculation on one loan.

The practical record is simple. Keep the original value, the start date, the balance, and the servicer’s written answer. If the annual notice the servicer is supposed to send describes borrower-paid mortgage insurance, read it against the Loan Estimate that started the file. If a sentence on a blog or in a group chat gives a cancellation month with no original value attached, it is not yet about this loan. Suneet Singal’s site can define the milestones. Only the servicer can apply them to an account number.

A labeled illustration, not a premium quote

Suppose a worksheet, labeled as a worksheet, shows principal and interest of $2,398.20 on a hypothetical $400,000 loan at a hypothetical 6 percent for 30 years. Suppose the same worksheet then adds a mortgage-insurance line of $150 a month. The housing payment for principal, interest, and mortgage insurance is $2,548.20 before taxes and hazard insurance. The $150 is not a market premium. It is a placeholder so the addition is visible. A real file might show $80, or $260, or an upfront amount and no monthly amount. The only legitimate way to replace the placeholder is to copy the figure from the Loan Estimate or the servicer’s statement and to write the date of that document next to it.

The placeholder still teaches a comparison people skip. A second worksheet with a larger down payment might show a loan of $360,000, principal and interest of $2,158.38 at the same hypothetical 6 percent and 30-year term, and no monthly mortgage insurance. The second payment is lower for two reasons at once: the loan is smaller, and the insurance line is absent. Attributing the entire difference to “putting more down” without splitting those reasons makes the next comparison sloppy. Split them. Then put taxes and insurance back in, because both worksheets omitted them on purpose.

Nothing in the illustration is a recommendation to choose the larger down payment or the smaller one. The larger down payment requires more cash on the day of purchase. The smaller one can require more cash every month for as long as the premium lasts, and a higher total interest bill because the balance is larger. Which pattern fits a household depends on the cash they have, the stability of the income, and how long they expect to hold the loan. This page does not know those facts. The blog post on the 20 percent down payment, linked from the down-payment entry, is a separate discussion of the waiting cost. It is not copied here, and it is not a premium table.

What to look up before repeating a rule

Four lookups prevent most of the bad repetitions. First, read the CFPB page on private mortgage insurance and notice which sentences are definitions and which are rights that depend on the loan being covered. Second, read the Loan Estimate and write down whether the file shows borrower-paid mortgage insurance, an FHA premium, a VA funding fee, or a lender-paid structure. Third, if a national rate is part of the story someone is telling, open FRED series MORTGAGE30US and record the observation date, understanding that the series is a weekly average of 30-year fixed rates and not a premium. Fourth, if someone quotes a “typical” premium in percent, ask for the document and the year. If there is no document, do not adopt the percent.

The National Association of Realtors research page sometimes sits in the background of these conversations because buyers are also reading sales statistics. A sales statistic does not contain a household’s mortgage insurance. It can be relevant to the price, which changes the loan, which changes the premium. That chain is real and it is also easy to overstate. A median price is not this contract price. The entry on reading a housing data release is the place to slow that chain down. For mortgage insurance itself, the chain always has to end at the loan file.

Keep the language tight when you repeat what you learned. “Borrower-paid private mortgage insurance protects the lender, and on many conventional loans it is required above a loan-to-value the program sets” is a sentence this page will stand behind. “Mortgage insurance is how you avoid taxes on the house” is not, and neither is “it falls off automatically at 20 percent of whatever the house is worth now.” The second pair feel practical. They are how a correct idea gets replaced by a nearby idea that will not match the servicer’s letter. The letter wins.

What this reference refuses to decide

This reference refuses to decide whether a reader should buy with mortgage insurance, wait, or not buy. It refuses to estimate a premium from a credit score, a city, or a down-payment percent. It refuses to give a cancellation month for a loan it has not seen. Those refusals are the point of publishing the entry on a personal site rather than inside a lender’s rate sheet. Suneet Singal is not, on this page, offering a loan, pricing insurance, or reviewing a borrower’s file. The biography states a real estate and corporate finance background. That background explains why the site has a housing reference. It does not turn the reference into an application.

Use the entry as a checklist beside the official pages. If the checklist and the CFPB page ever seem to disagree, follow the CFPB page and the loan documents, and use the contact route on this site if a sentence here is wrong. Definitions can be corrected. A premium invented to make a paragraph concrete cannot be corrected into someone’s actual bill, which is why the only premium on this page was labeled as a placeholder and given no claim to be typical. The next document to open is the Loan Estimate, not another summary.

What this entry does not claim

Suneet Singal’s published professional background is in real estate and corporate finance. Company filings linked from this site record a chief executive officer departure from FC Global Realty Incorporated effective 2 January 2018 and an acting chief executive officer appointment at First Capital Investment Corporation effective 12 September 2017. The Suneet Singal Scholarship, Grant and Giving websites describe him as the founder of those programs. This entry explains a general subject. It is not a private track record, a current job title, an investment result, or a quote.

Continue with what a down payment changes, closing costs, and interest rates and the monthly payment.