See: Mortgage. See: Private Mortgage Insurance - PMI.
You’ve had a bumpy financial career. You’ve had a couple bankruptcies, a few divorces, and you’ve skipped out on a couple dinner checks by sneaking out the bathroom window. Now you’re applying for a mortgage, and the banker across from you is flipping through your paperwork with an extremely skeptical look.
You might have to get some mortgage insurance to get the deal done. And in many settings, mortgage insurance in one form or another, is required when buyers of homes put less than 20% down. Why? Bank risk. If there's a 20% cushion, even if the $500,000 home with $100,000 having been put down sells for $415,000, the bank likely gets all or most of its money back.
This product works like normal insurance (like life insurance or car insurance), except that it protects your mortgage lender against the possibility that you default on the loan. If you stop paying (the mortgage equivalent of sneaking out the window), the insurance will reimburse the bank for the cost of the loan. The catch: its costs are not tax-deductible.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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