If you have ever purchased or refinanced a home that is over 80% loan to value you have probably heard the term mortgage insurance or are currently paying it. There are several ways to avoid paying or keep the cost of mortgage insurance down.
Many of todays wholesale lenders offer loans with no Mortgage Insurance. Talk to your favorite Mortgage Professional Today.
To avoid Private Mortgage Insurance (PMI) on of the things that you may be able to do is to obtain a second mortgage. The lender will only require PMI on a mortgage that is 80% LTV or more and if you keep the first mortgage at 80% and get a second mortgage for the remaining 5-20% this will avoid the PMI.
There are programs with Lender Paid Mortgage Insurance (LPMI) . The rate is slightly higher, but it allows you to secure a mortgage over 80% and have the lender pay the mortgage insurance. Another benefit of this program is that the money you spend on a higher payment from the interest rate is tax deductible, whereas mortgage insurance is not.
Mortgae insurance is avoided in many "sub prime" and "alternative A" lending programs. Although the interest rates may be a little higher, the borrower must keep in mind that interest is tax deductable and the mortgage insurance premiums are not. Often when factoring in the increased tax deduction the sub prime type mortgage makes sense.
If you get a low rate by paying mortgage insurance, it may well be worth paying mortgage insurance for the short term, if you plan on keeping your property for awhile.
Talk to a loan specialist about our piggyback loan programs, which help avoid mortgage insurance entirely in most cases.
Mortgage insurance does not protect you, it protects the lender. If you can avoid having it, it is usually wise to do so.
Mortgage insurance costs decrease over time as you gain equity in your home. If the value of your home has increased and the principal balance of your mortgage is at or below 80% of the market value of your home, you may be able to have the mortgage insurance removed. Contact your mortgage company for details
The piggybacked 1st and 2nd mortgage is also known as a combo loan. Some of the different combos are the 80/20 (most common) 70/30 and you may even see any variation of those such as 80/10/10 etc... The second loan on these are what they call self insured loans. Although the second loan will have a higher interest rate you will almost always come out better on a combo loan versus one loan with MI. A couple of reasons why: 1 - your insurance isn't tax deductible where you interest payments on your second loan are. 2 - you can pay down your second lien off faster leaving you with a payment that is less once this is complete.
If you are currently paying for Private Mortgage Insurance premium on your mortgage, you may be able to drop the PMI coverage. Hire a certified appraiser to evaluate the value of your home. In most cases, a bank would not require PMI if the home value has increased so much where the outstanding loan balance is less than 80% of the increased value. Review your mortgage note or call your lender before ordering the appraisal.
Most people really don't understand mortgage insurance and think it is something designed to benefit lender. Mortgage insurance, also referred to as private mortgage insurance (PMI), is the reason borrowers were first able to buy home with little or no money down. Loans with less than 20% down are considered high-risk loans and lenders didn't make them before PMI. With the advent of PMI, the risk to lenders was lessened and they were willing to make loans with little money down.
One way to purchase a home without mortgage insurance is to have an 80/20. That means your first mortgage is at 80 % and your second mortgage is at 20%.
There are many options to avoid mortgage insurance. Financing with 2 loans, LPMI (Lender Paid Mortgage Insurance)which is taking a relatively small rate bump, or by obtaining a subprime loan with a somewhat higher rate will all avoid PMI (Private Mortgage Insurance) If you plan on keeping your home for awhile and you are getting into a great low fixed rate another option is to pay a one time upfront MI (Mortgage Insurance) premium. By paying the one time premium you will be able to get a sizable overall discount of what you would have paid if you chose to pay mortgage insurance monthly. Also, lowering your mortgage term to a 20 year mortgage or a 15 year mortgage will heavily decrease your mortgage insurance payment.
Private mortgage insurance (PMI) is paid to protect the lender against borrower default. Having a piggyback or second mortgage can help you avoid paying PMI.
Keep in mind that if you don't have enough for a 20% down payment, but have some money to put down, that you can choose to do an 80/10/10 or a 80/15/5 and avoid Mortgage Insurance.