MI (Mortgage Insurance) Vs. Sub-Prime Mortgage Programs Things You Should Know

With the Mortgage Industry facing huge losses in the Foreclosure and Short Sale area's, Mortgage Insurance (Mortgage Insurance is required when you have less then 20% equity) companies have changed rates to help compensate their losses as well. Mortgage Insurance is not here to protect the consumer but to protect the investor of risk. 

I have always told my clients not to concentrate on rate but to look at their total payment. After all when they make a check out for their mortgage they are not making it out in rate but in Dollars. Below is a recent loan scenario that I ran for a client of mine.  Please keep in mind this client did not qualify for a Fannie Mae Loan or FHA because of Documentation purposes.

The client was shopping around for a Mortgage Professional and a quote on a refinance of their current Mortgage.  The person was promised a 7% rate plus because of the high Loan-to-Value they would require Mortgage Insurance.  When the client found me and ran their scenario by me I quoted them a Sub-Prime Loan at 9.25% but NO Mortgage Insurance would be required because of the rate.  You can imagine who the client chose to go with.  I did inform the client that based on the information they gave me they would not be approved for the loan at 7% because of several reasons of which I won't go into here.  To make a long story their loan was denied from the other Mortgage person and they where back with me.  Below is the loan broken down.

          Loan Amount $200,000                    Loan Amount $200,000                    Loan Amount $200,000

          30 Year Rate          7%                    30 year Rate       9.25%                   40 Year Rate      9.40%

          MI Payment         $191                    No MI                                             No MI                       

                                 $1,521                                           $1,645                                           $1,604

Now the truth is they did not qualify for the lowest rate so we can't keep going back to it. However, you can see we can get the TOTAL payment within $83 of the promised rate and payment which in this case they do qualify for.  

Now over the life of a Mortgage the $83 can add up to a lot of money and the Mortgage Insurance can be dropped after a minimum of 24 payments and proof that you have a minimum of 20% equity (in some cases 25% equity would be required).

Please note that their is NO set fee on Mortgage Insurance and it does vary with Mortgage Programs, Loan-To-Value and Risk status found from Fannie Mae.  Please speak to your Mortgage Professional to get an exact quote of what your Mortgage Insurance Payment will be.

In closing, don't be scared off when you hear the words Subprime Mortgage or a higher Interest rate.  Take a look at the whole picture including what your Mortgage Insurance payment would be.  Also, please remember that it is up to the Lender to remove the Mortgage Insurance when THEY feel you have the equity in your property.  In addition the average life of a Mortgage (in Florida) is only 4 1/2 years.  A true Mortgage Professional will go through all of your options a head of time and give you all of the information.  As always ask questions after all it is your money!

For More Mortgage Advice: Mortgage Advice in South Florida

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