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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.
If a borrower makes a down payment of 20% of the cost of the
home, the lender can generally trust that he will make his
mortgage payments faithfully to protect a large investment. In
this case, the lender comes out ahead if the borrower is forced
to foreclose on his house, because the lender loans 80% of the
cost of the house, but will probably recover 100% of the cost of
the house. But, if the borrower makes a smaller down-payment,
such as 3%, 5% or 10%, and borrows the rest, and then defaults on
his loan, the lender loses money.
If a house is purchased with a conventional mortgage and a
down payment of less than 20 percent, PMI is almost always a
requirement. The insurance benefits the lender, but the borrower
pays for it. An initial premium is included in the closing costs,
and a monthly amount in the house payment.
The PMI cost varies depending upon the size of the mortgage
and the percentage of the down payment. If the down payment is
more than 15 percent but less than 20 percent, the borrower will
generally pay about 0.32 percent of the loan amount annually in
PMI premiums. That totals about $40 a month for a $150,000
mortgage.
But PMI is not fool-proof. Homeowners can sometimes eliminate
private mortgage insurance by refinancing their loans -- even if
they continue to owe more than 80 percent of the value of the
house. And there are new laws that require lenders to remove PMI
if a mortgage does not exceed 80% of the value of a home. But,
this new law only applies to loans recorded after July 29, 1999.
If a borrower has a loan that was recorded before July 29, 1999
and thinks he might like to cancel the mortgage insurance after a
few years, he could, depending on the conditions and whether the
insurer allows cancellation.
The most common method used to avoid paying private mortgage
insurance is for a borrower to get a "piggyback loan" - a second
mortgage that allows him to make a 20 percent down payment. For
example, a borrower can pay 10 percent down, get a first mortgage
of 80 percent, and a second mortgage of 10 percent. The piggyback
loan is always at a higher rate. The borrower is not paying for
PMI, but is still making a monthly payment, probably for roughly
the same amount as PMI. A piggyback loan also has an income tax
advantage because it allows the borrower to deduct the interest
from his taxable income. However, he can't deduct the cost of
PMI.
For homeowners who owe between 80 and 83 percent of the
house's value, the best way to avoid PMI when refinancing the
loan is to find a lender that won't immediately sell the mortgage
on the secondary market. Generally, to eliminate PMI, a homeowner
must have a spotless mortgage payment history and be able to fit
a certain profile of borrower. Examples of good candidates
include:
* A homeowner who is refinancing a mortgage and has had no
late payments in the last year or two.
* Someone who is barely over the 80-percent PMI threshold.
(For example, if he owes $85,000 on a $100,000 house, he probably
won't get a break on PMI, but someone who owes $82,000
might.)
* A homeowner who is otherwise creditworthy -- has a high
credit score, a stable job, and a good ratio of income to
debt.
Even with these credentials, the homeowner must try hard to
find a lender that keeps mortgage loans on its books and is
willing to take the risk. Most mortgage lenders don't hold loans
for long. They bundle mortgages together and sell them to large
investors such as big banks, insurance companies, pension funds
and institutions such as the Federal National Mortgage
Association, known as Fannie Mae.
The reason for selling mortgages is to free up money to lend
again because the original lender gets most of its money (and
profit) from fees and the sale of the loan, not from interest.
The investors who buy pools of loans ultimately earn the interest
that borrowers pay.
PMI assures investors that their bundles of loans won't go
bad. Homeowners who put less than 20 percent down are more likely
to default. That is why they're required to have private mortgage
insurance. Otherwise, the loans won't be marketable.
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New HARP Could Help Up to 6.7 MillionNASDAQOther changes to the program were designed to make it easier for homeowners with private mortgage insurance (PMI) to refinance or to obtain a HARP mortgage refinance with a lender other than their current mortgage servicer. In addition, new limits were ...and more » |
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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.
Buying A Home With No
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Private mortgage insurance is an excellent method for
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A house is just perfect with chipped walls and broken taps.
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The process of obtaining a mortgage or home loan can be
very stressful and quite time consuming. Finding the best
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between lenders and loan packages.
What is an Offset
Mortgage?
An offset mortgage is very similar to a current account
mortgage - but instead of having everything all in one
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mortgage concept treats your money as one giant pot, with
each element (mortgage, savings, current account etc)
separate to the rest.
Mortgage Terminology for
the First Time Home Buyer
Buying a Home for the first time can be a little "nerve
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can leave you scratching your head or shaking your head
pretending that you know what they're talking about.
Consolidate Debt With A
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If you are a home owner who is having to borrow from Peter
to pay Paul due to a mounting debt load, a debt
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High Risk Home Mortgage
Lenders Online
Online high risk home mortgage lenders specialize in
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Shopping for a Mortgage,
Avoid Three Common Mistakes
Buying a home or refinancing one is perhaps the largest
financial transaction you will ever make in your life, so
you want to be sure to avoid any mistakes that may cost you
in the long run. When you are deciding on a mortgage, you
certainly don't want to make your decision by flipping a
coin.
Renters Have Much to
Gain by Pursuing Home Ownership
Buying a home vs. renting is a big decision that takes
careful consideration, as most mortgage consultants will
agree.
I Have A Slice of the
American Dream and It is a 30 Year Nightmare
Well, we did it. We are buying a beautiful, brand new
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Mortgage Loan Most
Bankers Wont Give May Be Exactly What You Need to Buy or
Refinance Your Home
A few years ago, a loan officer who worked for me was
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Refinancing Your Home
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There are numerous reasons a person has bad credit. Late or
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with a poor credit rating.
A Home Equity Loan -
What You Should Know?
Asking yourself, "Is a home equity loan right for me?" is
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Key an Eye on Your
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In previous decades, when a borrower missed a payment on a
mortgage, the lender would often consider them one month
behind until they eventually caught up. Most lenders would
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them onto the back end of the loan as long as the lender
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What is a Buy To Let
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A buy to let mortgage is a mortgage on a property which is
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A buy to let mortgage is exactly as it sounds - a mortgage
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I have a lot of friends and family who are currently buying
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5 Steps to Getting on
Top of your Mortgage
Getting on top of your mortgage so you can pay your loan
off faster and potentially save thousands of dollars on
your home loan is possible with a plan and consistent
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