THINK TWICE ABOUT LPMI (LENDER PAID MORTGAGE INSURANCE)
I would say this exact same thing about ANY loan product before accepting it!
I've run into several borrowers who want to refinance and now is a great time, but they have LPMI - lender paid mortgage insurance. LPMI was offered to borrowers who wanted to do 100% financing. The interest rate was about .750% higher, but the lender paid the PMI (private mortgage insurance) from the higher rate.
LPMI was touted as a good idea because PMI was not a tax deduction whereas interest was, so many borrowers signed up for it for that reason. I personally did not utilize this product because I had better products for zero down.
Fannie and Freddie bought the LPMI loans in their portfolio and most people are aware that if a loan is owned by Fannie or Freddie, HARP II may be available for refinancing even when borrowers are upside down.
But, wait a minute! LPMI is a special case for these borrowers. Many may be left out in the cold still because of the LPMI. It is not easily transferable it seems.
PMI became a tax deduction in 2007 greatly reducing the need for choosing LPMI. As is the case with all loan programs, know all the facts and compare products. The PMI deduction was not a permanent change but Congress can extend it.
Clearly the pro in a normal market for having LPMI would be if the tax deduction is not available for PMI along with the fact one may not stay in the home very long. The con is that you have it for the life of the loan vs regular PMI when you can drop it when you get at least 20 - 22% equity. Lenders still offer LPMI and in come case it may be a good fit. Sadly, many borrowers have lost so much equity LPMI may be adding to their woes.
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