Should You Pay PMI or the Higher Interest Rate
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You Compare mortgage rates but,should I pay PMI or go with the loan with a higher interest rate but no PMI? This is a choice many borrowers face when deciding on a loan. There are many pros and cons for each choice. Borrowers should talk to an experienced Mortgage Consultant or Financial Consultant to help with their decision.
Some lenders pay the mortgage insurance on loans over 80% by raising the rate by a small fraction. This allows the borrower to get one loan and not having an additional expense which is not deductible on one’s taxes.
There are loans out there where PMI is not required and your interest rate will not be effected as well. For example, keeping your LTV (loan to value) below 80% will allow you to not pay PMI with any loan, where it may just be a lender that does not require it.
Why do lenders charge PMI if your loan is above 80% LTV? Studies have shown that most foreclosures happen before the borrower has 20% of the mortgage’s principal paid off. So, loans with an LTV of 80% or higher pose a greater risk to the lender.
You may also choose to do a combo mortgage like an 80/20 to avoid PMI. A combo mortgage carries with it a higher rate
on the second mortgage. Even with a higher rate second the borrower often comes out ahead when compared to a traditional loan with PMI.
Some savvy buyers will negotiate for the seller to pay the PMI as a one time up front charge. Be sure to ask your Loan Officer and Realtor if seller paid PMI is an option for you.
PMI is not tax deductible, but mortgage interest is. You will want to take that factor into consideration when making your choice.
There are also some lenders that offer a lender paid MI program. On pay option loans they will usually increase the start rate of the loan.
There are also some loan programs now available that do one loan up to 100% with no PMI, ask your Loan Officer for more details.
Private Mortgage Insurance (PMI) must be maintain until the loan balance falls below 78% loan-to-value (LTV) ratio. The decision on getting a loan with a higher interest rate or one with PMI depends partly on how long for the loan to reach 78%. Also, home owners tend to opt for mortgages with PMI if they intend to refinance in the near future.
The Truth About PMI, Private Mortgage Insurance
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When shopping for a mortgage there is more to do than just compare mortgage rate quotes. Private mortgage insurance or commonly called “PMI” is insurance provided by a private company helping to protect the mortgage lender against mortgage default. Generally, this insurance is required by the lender when the down payment is less than 20% of the properly value. The lender requires the borrower to pay the insurance premiums.
Private mortgage insurance can be avoided. If you are looking to do a 100% financing loan, one option is to do an 80/20 combo loan. This allows you to avoid mortgage insurance and will provide a lower payment than if you were to pay the private mortgage insurance.
Some lenders now have loan programs where the lender pays the PMI and the rate is only slightly higher than it would be if the loan was under 80% of the value of the home. Consider all your options when looking for help with private mortgage insurance .
One of the most frequently misunderstood aspects of mortgaging a home, especially for first-time buyers, is Private Mortgage Insurance (PMI). The most common misconception is that PMI is a mortgage life insurance policy whereby the mortgage would be paid off should the borrower die. It is not. Instead, PMI is an insurance that most lenders require of all borrowers who put less than 20% down. It’s purpose is to protect the lender against losses should the borrower default.
Virtually all conventional mortgages with less than a 20% down payment will dictate the inclusion of PMI. FHA mortgages, which are insured by the Federal Government, require a different type of insurance with different coverages. The cost of PMI will depend on a number of factors, including the insurance carrier and the size of the loan, but monthly payments for the insurance will generally fall into the $25 – $100 range for median priced homes. Be sure to quote insurance rates as you may be able to find lower coast premiums
