When using a home mortgage to purchase a home, if you do not make a twenty percent down payment, then traditionally that means that you have to pay a monthly private mortgage insurance payment. Private mortgage insurance or pmi, is insurance to protect the bank from a potential foreclosure and loss, for those making smaller down payments.
However, it is possible to essentially eliminate a monthly mortgage insurance payment, through what is called lender paid mortgage insurance. In this case, if you only have say a 5% down payment, you can “purchase” a lender paid mortgage insurance policy at the start of the loan and eliminate the need to ever pay for mortgage insurance out of pocket again.
In order to do this, you can either choose to pay a flat fee out of pocket one time or many lenders will offer to essentially finance in the cost of the policy by offering a slightly higher interest rate for your home loan, eliminating the need to pay anything up front or through the life of the loan, for mortgage insurance.
While it may not sound attractive to take a higher interest rate, in almost all cases, if you choose to “purchase” a lender paid policy to eliminate mortgage insurance monthly payments, your initial total payment would be less than taking a lower interest rate and paying mortgage insurance on a monthly basis.
The same holds true if looking to refinance to remove mortgage insurance from your home loan. If you have less than 20% equity, you may still be able to refinance and remove the monthly mortgage insurance through LPMI.
So, if you have less a than 20% down payment and are purchasing a home, it makes sense to compare the option of regular mortgage insurance and lender paid mortgage insurance. Taking the lender paid mortgage insurance could save you money on your monthly payment right away.
As always, it makes sense to speak to a licensed lender, such as Strategic Mortgage to fully qualify and see what home loan options are available to meet your specific situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Strategic Mortgage, LLC – AZBK#0909514 - NMLS#158804 - Equal Housing Lender
Vasilios Kamboukos – NMLS#160440
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