How to avoid
mortgage insurance - 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.
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.
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.
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.
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.
