Lower Cash to Close

• If the homeowner chooses to include the UFMIP or single premium private mortgage insurance into the loan amount it lowers the total amount of cash required to close the mortgage. This allows the homeowner to keep those funds in the bank or use them for other things. Private mortgage insurance companies offer a mortgage insurance program where the borrower makes one large payment at closing, which covers the life of the loan instead of monthly premiums in addition to their monthly mortgage payment. If the homeowner refinances with single pay private mortgage insurance, he may be able to include it in the new mortgage.
  
  

Tax Deduction

• The IRS allows deduction of mortgage insurance premiums in some cases. If you pay the mortgage insurance premium monthly or finance it into the mortgage, eligible taxpayers may deduct the prepaid mortgage insurance over the lesser of 84 months or the term of the loan. Unfortunately, the IRS does not allow homeowners who finance prepaid mortgage insurance or UFMIP to take the entire deduction in the same year the home is purchased. When you finance the mortgage insurance, you are able to deduct it as you spend the money for it.
  
  

Interest Owed

• Anytime you finance anything for 30 years, the interest charges become substantial. If you finance $8,000 of mortgage insurance into your mortgage and you make all 360 payments required for a 30-year mortgage, you may spend as much or more on interest as you did for the actual insurance. This increases the cost of the insurance significantly, sometimes by more than double. Consider the actual cost of the insurance, including the interest owed, when financing mortgage insurance.
  
  

Avoid Paying or Financing Mortgage Insurance

• There are ways to avoid paying or financing mortgage insurance altogether, even if your loan's balance exceeds 80 percent of the home's value. Both FHA and private mortgage insurance companies allow the seller to pay for the UFMIP or single paid mortgage insurance premium. Additionally private mortgage insurance companies allow lender-paid mortgage insurance where the lender pays for the cost of the mortgage insurance and then raises your interest rate slightly to pay for the difference. If your loan requires mortgage insurance, but you do not intend to live in the home for a significant number of years, this option may save you money in the end.