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3 Ways To Avoid Mortgage Insurance

October 25, 2019 by Kay Monigold

3 Ways to Avoid Mortgage InsuranceWhen you are buying a home, you may run into a number of hurdles to complete the purchase. One of the items that you may be asked to purchase is called private mortgage insurance, often shortened to PMI. This is a unique insurance policy that your lender, such as the credit union or bank, may ask you to buy in order to protect themselves. In this insurance policy, the bank protects themselves against losing money if you end up defaulting on your loan.

Unfortunately, if you are asked to purchase PMI, this will increase your monthly mortgage payment. Therefore, most people try to avoid it. Fortunately, there are a few ways to do this.

Increase the Size of Your Down Payment

Typically, the lender will ask you to purchase PMI if your loan to value ratio is off. In most cases, the lender will ask you to buy PMI if you put down less than 20 percent. It is important to remember that this is still handled on an individual case-by-case basis and each lender handles this differently. 

Invest in a Piggyback Mortgage

Another option to avoid PMI is to invest in something called a piggyback mortgage. In this case, you are splitting your mortgage into two policies. For example, if you put down 10 percent, you would need to take out a mortgage for the other 90 percent.

When you take out a piggyback mortgage, you split this 90 percent loan into one mortgage for 80 percent and the other for 10 percent. The drawback of this policy is that the second loan might have a higher interest rate than the first. This can help you avoid having to take out PMI.

Try Building the PMI Into the Loan

Finally, the last option is to roll them into the cost of the loan. In this case, the lender avoids asking you to purchase PMI and instead charges you a little bit more money for the loan. You won’t have a section on your bill for “private mortgage insurance” but you will have a slightly higher monthly payment anyways. Remember that you can refinance to a lower rate later, saving some money; however, it might be harder to eliminate PMI.

Avoiding Mortgage Insurance

These are a few ways that you can avoid purchasing PMI. This will help you keep your monthly payments low. As always, speak with your trusted mortgage professional for personal advice on your specific situation.

Filed Under: Mortgage Tagged With: Insurance, Mortgage, PMI

What Exactly Is Private Mortgage Insurance (PMI)?

October 16, 2019 by Kay Monigold

What Exactly Is Private Mortgage InsurancePMI, which is also called private mortgage insurance, is protect that the lender may ask the buyer to purchase. In the event that the buyer defaults on their home loan and the home enters foreclosure, the lender has a way to recoup their losses.

While the lender may not ask everyone to purchase PMI, there are some situations where the lender may ask the buyer to purchase this insurance policy to qualify for the loan.

Every lender is a little bit different; however, there are some trends throughout the industry. Most lenders ask the buyer to place a down payment of about 20 percent of the total price of the house. If the buyer is not able to put at least 20 percent down on a home, the loan is riskier for the lender. In this case, the lender may ask the buyer to purchase a PMI policy.

The Structure Of A PMI Payment

Typically, the PMI policy is paid in a monthly manner. It is included as a part of the total mortgage payment as the buyer pays the loan back to their lender. The positive news is that the buyer typically does not have to pay PMI for the life of the loan. Once the equity in the home reaches about 22 percent, the lender typically terminates PMI. 

In some situations, the buyer may be able to contact the lender and ask for PMI termination at an earlier date. Some people can negotiate this percentage or time period in advance of taking out the loan.

The Cost Of Private Mortgage Insurance

In general, the cost of a PMI policy is dependent on the value of the mortgage loan. It typically runs somewhere between 0.5 percent and 1 percent of the total value of the mortgage loan. Therefore, this can raise the monthly mortgage payment by a significant amount.

For example, if someone receives a $300,000 loan from the bank with a PMI policy of 1 percent, the buyer will have to pay an extra $3,000 per year as part of their mortgage payment. This is an extra $250 per month on their total payment. For some people, this additional cost might make their dream house unaffordable. 

Therefore, whenever possible, buyers should try to work with their trusted professional mortgage lender and look at options to avoid purchasing PMI. Every lender is a little bit different when it comes to private mortgage insurance.

Filed Under: Mortgage Tagged With: Financing Options, Insurance, Mortgage

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Our Team

Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Ron MartinRon Martin
Residential Mortgage Loan Originator

NMLS#316821

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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