How to Avoid Paying Mortgage Insurance
In today's world, a borrower should not be paying mortgage insurance (PMI) on their home mortgage with a few exceptions such as an FHA loan. Mortgage Insurance is a thing of the past. Let's first explain what mortgage insurance is. A lender requires a borrower to pay mortgage insurance if the loan amount is greater than 80% of the value of the home on a single loan. The reason this is the case is the loan is not sellable in the secondary financial markets as it does not meet certain guidelines. As a result, the lender makes you pay for their insurance in the event you default on the loan. The insurance will cover the lender for the balance of the loan plus expenses. The problem for borrowers is that mortgage insurance is expensive?..sometimes $100 or more per month. Fortunately in today's mortgage world, we have legal common ways to avoid paying mortgage insurance in most cases. Let's say you are a first time home buyer and only have 5% to put down on a condo or house. A mortgage professional should do two loans for you. A First Mortgage Loan in the amount of 80% of the value of your home and then a Second Mortgage for the remaining 15% of the loan balance. This would be called an 80/15/5 (80% 1st Loan, 15% 2nd Loan, 5% Down) The question you ask is why? Well, by doing two loans your payment every month will be cheaper so take a look at this example to see why. For example, let's say you had 10% to put down, we would do a 1st loan at 80% and then a 2nd loan at 10%. The 2nd loan will always carry a higher interest rate, but when you break the numbers down, it's cheaper from a payment point of view to have the two loans. Here is a $180,000 loan at 6% fixed rate for 30 years. Option 1 with PMI
Single Loan 90%
P&I $1,079
PMI $ 85
Payment $1,164 Option 2 with 2nd note and no PMI
Two Loans 80% / 10%
P&I 1st Loan $971
P&I 2nd Loan $126
Payment $1,097 In this example, the borrower will save $67 per month by not paying Mortgage Insurance (PMI) Depending on the type of loan, the Second Mortgage often times can have an interest only option where your payment would even be less on a monthly basis. The downside to this solution is your not paying down the principle on your 2nd mortgage, however if you're a first time home buyer with limited cash flow, this would be a viable solution for you. A mortgage professional should lay out the various options for you in writing so you can make an educated decision as to the best solution for you. If your currently in a loan with mortgage insurance, then you need to speak with a mortgage professional immediately so your not wasting money on a monthly basis. Your mortgage professional should provide an analysis to determine if doing the transaction is feasible for you with consideration of some closing costs. (Per the FHA, all FHA loans require mortgage insurnace if the loan is 80% or greater. the mortage insurance will remain in effect for a period of 5 years. If after the 5 years and your loan balance has fallen below 78% of the value of your home, you will be eligable to stop paying mortgage insurance. Douglas Boncosky is a Mortgage Professional and Author. Doug has published a number of articles, guides and books including the 50 page book, "First Time Buyers Guide to a Stress Free Home Buying Process" Doug is Personal Mortgage Advisor for Smart Mortgage Access, a Schuamburg, IL based mortgage broker. Doug is also Founder & Executive Director of The Advisors Club, a organization exclusively for Chicago area Real Estate Professionals. For more information, please contact Doug at http://www.dougboncosky.com
Related News
|
 |
|
|
RELATED ARTICLES
Mortgage ? What, Why, When, and How?
What is a mortgage? Here's what The New Merriam ? Webster Dictionary definition is: "a
transfer of rights to a piece of property usu. as security for the payment of a
loan or debt that becomes void when the debt is paid." That's as plain and
simple as it gets, you pledge the property that you're buying to the lender
until your home loan is paid off then the mortgage is released and you own the
property free and clear. The term "Mortgage Loan" usually pertains to the loan
used to purchase a home.
Florida Refinance - Refinancing in Florida
The decision to buy a home in Florida can be one of the best you will ever make. If you own a home in Florida you may be considering refinancing. Refinancing now can potentially save you thousands of dollars over the length of your mortgage. Florida lenders are offering low interest rates and could save you thousands of dollars over the length of your loan. Mortgage companies serving Florida and the United States are able to offer loan packages that make refinancing your home a wise decision. Compare your current interest rate to the rates being offered now and see how much money you can save by refinancing your home.
Home Buyer Beware ? Know the Signs of Real Estate Market Trouble
Lots of articles have appeared recently about the booming real estate market in the United States. Home prices, especially on the East and West coasts, are not only at record levels, but are increasing at record rates. In some areas around Washington, D.C. and San Francisco, home prices have tripled in the last five years. While many homeowners have been enjoying huge increases in their equity, realized when they either sell their home or borrow against it, the market has become increasingly difficult for those trying to buy homes. It may get worse, as there are now some strong signs that the market may be near its peak:
UK Mortages: A Guide Through The Maze
Types of UK Mortgages
Getting the Best Homeowner Loan for Your Money
With so many lenders out there, it can be hard to tell if you're getting the best homeowner loan for your money. Banks, finance companies, and online lending services all offer competing loans, but determining which offers you the best homeowner loan can be tricky.
Mortgage Lead and Mortgage Leads
A mortgage lead is an exciting thing because you are filled with the thought of buying a house. Mortgage leads are listings of information dealing with how much a house will be. Although the thought of a mortgage lead can be kind of scary, the time when you are looking for a mortgage is one of the most exciting times of your life. Mortgage leads can be found through many different sources, but first you must look at your financial situation before even beginning the thought process of buying a house and looking for a mortgage.
A Guide to Finding Cheap Homeowner Loans
If you're actively looking for cheap homeowner loans, there are several things that you should take into consideration to make sure that you get the best loan for your money.
VA Loans, A Gift from Uncle Sam
Uncle Sam has a gift for the men and women who serve our country. It is the VA loan. The VA loan, short for Department of Veterans Affairs home loans, is available to veterans, active service members, reservists, and members of the Public Health Service. These loans are so popular, that in the past fiscal year alone, Uncle Sam has guaranteed 300,000 VA loans totaling more than $38 billion.
Some Mortgage Loans are Available with Absolutely no Money Needed From You
Today, FHA will loan up to 97 percent of the purchase price of a home, meaning a borrower only needs 3 percent. The three percent down payment can come in the form of a gift, and closing costs can be financed into the loan, making this a true no money out of pocket purchase transaction.
The Real Truth About Those: Online Get a Better Loan Web Sites - 6 Things to Look For
You have seen the Commercials on TV go this or that web Site and Refinance your Home and Save thousands. Tempting isn't it? Do they really save you money?
Mortgage Reduction Solutions
USA ECONOMIC CONDITIONS
Home Mortgage Quotes Online - How Do They Compare To a Quote From a Broker in The Real World?
Online home mortgage quotes are very similar to the quotes given by mortgage brokers in "the real world," except lower. With the reduced cost due to a simplified application process and reduce overhead for office space and personnel, online mortgage lenders can offer financing with no fees or lower interest rates.
Home Owner Loans Explained
How To Release Equity Locked Up In Your Home For Immediate Use.
What is a Tracker Mortgage?
A tracker mortgage 'tracks' the Bank of England base rate, meaning your mortgage stays in line with interest rates and the market in general. The result on your monthly mortgage interest payments is that they go up when the base rate goes up and go down when the base rate goes down.
5 Ways to Use Your Home Equity Line of Credit
Your home is a source of pride and accomplishment. Did you know that your home can also be an affordable source of income? As your home appreciates and you make your monthly mortgage payments you build what's called equity. You can access this equity at attractive interest rates using a home equity line of credit (HELOC).
Home Equity Loans ? A Big Benefit Or A Big Mistake?
When the bills are piling up and there doesn't seem to be any way out, a home equity loan can seem like the answer to your prayers. Home equity loans can also be a great way to jumpstart a business or investment portfolio. However it's important to realise that in some circumstances, a home equity loan may in fact make your life a whole lot worse.
Ending Your Private Mortgage Insurance Early
Private mortgage insurance, or PMI, is the safety net of the lender. PMI benefits lenders because it guarantees payment on the balance of loans not covered by the sale of foreclosed properties.
Bad Credit Home Financing - Buy a House Even With Poor Credit
Sub prime lenders come in two groups: reasonable and unreasonable. Reasonable sub prime lenders offer mortgage financing to high risk borrowers with slightly increased rates and fees. Unreasonable sub prime lenders charge several extra points and excessively high fees. Only through comparative shopping can you know if a particular lender is offering reasonable or unreasonable rates.
Bad Credit Home Loans - Pre-Approval is Still Possible With Adverse Credit History
If you are among the millions with less than perfect credit, there are many sources available to you in obtaining a mortgage. Lenders that specialize in mortgages for those with bad credit are competing for your business. The lender will analyze your credit report, credit score, debt-to-income ratio, and your employment history. You may also be asked to provide statements from your utility companies and other creditors to help form a complete picture of how you manage your finances. The lender will then inform you of how much you can afford to spend on a mortgage and the terms of the proposed home loan.
Mortgage Refinancing Companies -- Choosing The Right One
Searching for a mortgage refinance company can be a daunting task. In a moderately sized city, there could be at least several major refinancing companies and several smaller local refinancing institutions. In a larger city, you can easily have hundreds of refinancing companies. If you add in the access to mortgage companies via the Internet, the options are truly limitless. With so many options, how can you find the right lender to refinance your home mortgage loan?
|
