Cheryl Knowlton: Hi, everybody. Cheryl Knowlton, Dynamite Productions, coming at you with Clay Johnson, Castle and Cooke Mortgage. We are so excited this week to be here to talk about mortgage insurance. We get this question, both of us, even though I haven’t been in lending for a long time. People ask me all the time, what is mortgage insurance and who does it benefit? So, nobody better to address that.
Clay Johnson: Well, mortgage insurance is… People say there are no advantages to it. We’ll teach classes. We’ll say, “What’s the advantage of mortgage insurance or what’s the good thing about it?” And they’ll say, “Nothing” or…
Clay Johnson: Really, there is an advantage, and that is you can buy a home for less than 20% down. And so, that’s the nice thing. And so, anything above that with… Real estate markets can move a little bit. It protects the lender in case of a loss. If that loan were to go into default and they had to do a foreclosure sale or a courthouse step sale, they know that they’re going to be able to basically capture the difference between what they had to do a distress sale for in that case and what they have invested into it. So, it helps to kind of offset or cover that loss that could be incurred in the case of a foreclosure or short sale.
Cheryl Knowlton: Absolutely. So, just to make sure we’re all on the same page, mortgage insurance does not benefit the consumer. Mortgage insurance benefits the lender in the event that the borrower puts down less than 20%, so they don’t have enough skin in the game, and it protects the lender in the event that the buyer defaults.
Clay Johnson: Yeah. That’s a great summary. Yeah.
Cheryl Knowlton: Well, some people think that it’s the same thing as homeowners insurance.
Clay Johnson: They do.
Cheryl Knowlton: No, it’s not the same thing.
Clay Johnson: I know. They’re like, “Oh, my mortgage insurance agent is Todd down at State Farm.”
Cheryl Knowlton: “And if my house burns down, then we’re all covered.” That is not the same thing.
Clay Johnson: Very, very different.
Cheryl Knowlton: Very, very different.
Clay Johnson: Yeah. It does have some tax advantages in some cases, but very limited cases.
Cheryl Knowlton: Yes. So, talk to your tax professional to see if that applies to you. And in our next episode, we’ll talk about the difference between conventional mortgage insurance and FHA mortgage insurance, and we’ll see you there.
Clay Johnson: Bye-bye.