Do doctor mortgages have mortgage insurance and really, what is mortgage insurance? It’s funny, I get clients all the time that we get into discussions and they say, “I want to make sure we avoid mortgage insurance.” And I say, “Do you know what mortgage insurance is?” And they say, “No.” So let’s just start there.
First of all, mortgage insurance is a premium that you pay as the buyer, that protects the mortgage company. Basically, the mortgage company says, “Hey listen, I’m willing to loan you more than 80% of the value of the home, but we want you to pay for an insurance policy, so that if we have to foreclose, we’re protected.” So it doesn’t protect you, it protects the bank.
The other thing to keep in mind is that mortgage insurance is costly. It can be anywhere between a half a percent and up to 2% of the balance of the mortgage. So if you have a $300,000 mortgage, that’s somewhere between $1,500 and $6,000 a year, that can really impact your monthly payment.
*Lastly, the mortgage insurance premiums in most instances are not tax deductible, so mortgage interest is tax deductible, mortgage insurance is typically not tax deductible. So it makes it an even more costly premium than would be mortgage interest.
What you’ll find with a doctor mortgage is that most of them do not have monthly mortgage insurance premiums. You’re paying on average a slightly higher interest rate than you would with a conventional loan, maybe 0.2, 0.3% higher in rate, but you’re avoiding 0.5 to 2% in mortgage insurance, and that additional rate premium that you pay with a doctor mortgage is tax deductible, where mortgage insurance is not.
I hope that clears up your questions about mortgage insurance, but if not, we’d love to hear from you. Feel free to call 385-355-2130 or here and we’d be honored to answer your questions and help you with your new home.
* This is not tax advice. Please contact a tax professional for your specific situation.