Ways To Avoid Mortgage Insurance

2007-03-08 10:33:40

( Insurance )



If you are planning to get a loan to purchase property, you may need private mortgage insurance. A private mortgage insurance or what is commonly known as the PMI is required if your down payment on a loan is less than twenty percent of the sale price.

The annual charges from private mortgage insurance are usually half of one percent of the sale price. You can pay these charges monthly. Most potential home owners opt for this kind of loan because the price of the property is too high. Bear in mind that a PMI is not only good for a couple of years, you have to keep paying monthly or annual PMI charges until you have paid off at least eighty percent of your mortgage. Most lenders automatically cancel your private mortgage insurance when your payments reach seventy-eight percent.

However, the eighty percent rule does not apply to all borrowers. You may be required by your lender to pay your PMI until the full amount of your property has been paid off. This is applicable for people with inconsistent credit histories and also to those whose debts are not proportional to their income.

There are several ways to avoid paying a PMI. Some lending institutions will give you a mortgage insurance quote and then will give you another option of waiving the PMI but settling for a higher interest rate. The upside of this option is mortgage interest rates are tax deductible.

Another option is what they call the 80-10-10. This option has two mortgages and one down payment. You pay ten percent of the sale price. The remaining ninety percent goes into your first mortgage loan equal to eighty percent of the appraisal of the property. Your second mortgage amount is equal to ten percent left of the price with a higher interest.

Getting a second mortgage may seem intimidating to some but if you compare the cost of the PMI to the actual amount you are going to pay for two mortgages, you will be surprised that two mortgages equal a lower monthly payment.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.