Best Refinancing | Loan Rates For Your Needs

Avoid Private Mortgage Insurance Payments

Posted by on March 13, 2010 · Leave a Comment 

If you have watched or read any news, you must know that it is tougher to get a home loan than it was two years ago. Even people with great credit find that they have trouble qualifying for a lower interest loan even they they get advertised a lot. And private mortgage insurance (PMI), is also a lot harder to get out of.

What is PMI? It is a policy that protects your mortgage company, and not you, in case you default on your loan. They can be compensated for a loss on your home loan, but it does not remove your responsibility or help save your credit. Most lenders will require this coverage before they will qualify you for a loan. This reduces their risk when they loan you money. But it gives you a larger bill when you make your loan payments every month. So how can you avoid making this extra payment?

The most obvious way to avoid paying private mortgage insurance (PMI) is to have that twenty percent down payment. That way you will walk into your home with substantial equity. Your loan company will be satisfied because your loan will not be as risky. If you purchase a $100,000 home, and you put down $20,000, you should not be required to take out this coverage. You already will have some home equity. If things do go south on your loan, a lender is much more likely to be able to recover their share. Most of the time, they like to put the burden of paying for this on you.

There are still ways to avoid or reduce these extra payments even if you cannot come up wth a twenty percent down payment. You really should consider some alternatives because you could certainly put your money to better use. You could pay off your loan earlier, make home improvements, or start an emergency savings fund. These all seem like better options than paying money to protect your lender.

Let us look at what happens to your mortgage payment if you can avoid paying for this insurance that is put in place to protect your mortgage company, and not you. One way is called Lender Paid PMI. In return for a small adjustment to your mortgage rate, you can get the mortgage company to purchase the policy.

Take the example of a $150,000 mortgage which is fixed for thirty years at about five point five percent. Your payments should be about $850. You are only paying for the loan balance and interest.

Consider this same deal if you pay for the coverage. Let us say that your interest rate would be a little lower, like about five percent. You will still have paymets that were about nine hundred and sixty dollars a month. Your monthly bill would be over one hundred dollars a month more.

Remember that this hundred bucks covers your loan company, and it does not cover you. This seems a fair deal to me. Compensate them a little more, but let them pay the premiums!

Paying for the policy with one large premium, right up front, could give you a big discount on rates. This cost could be rolled into the actual loan at closing too. Even though you are borrowing the money you have to pay, it could be cheaper than making monthly payments on it.

A couple of years ago, it was very possible to avoid PMI without making a down payment. People took out an eighty percent loan from one company. They borrowed twenty percent from another lender. This meant they could get into a house without a down payment, and that they could avoid PMI. These are a lot tougher to find these days with tougher lending rules.

The simplest way to avoid paying PMI is to have a 20% down payment. If you do not have it, it may still make sense to go ahead with your purchase. But you may want to consider this decision. If you do not have the down payment for a $250,000 home, it might be a better idea to find a $150,000 home or just keep renting until you have more money saved. You will have a lot of costs associated with your new home purchase, and you want to make sure you have enough of a budget to cover everything.

Also save more with lower homeowners insurance rates . Grab a totally unique version of this article from the Uber Article Directory


Related Blogs

Filed under mortgage and asset-backed bond funds · Tagged with , , , , , , , , ,

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Best Refinancing | Loan Rates For Your Needs