How to "Replace" Mortgage Insurance
The many questions and comments I received regarding my recent post about Private Mortgage Insurance prove that PMI remains a topic of real interest and concern for Borrowers and real estate professionals alike ...
After reading my post, many readers raised the question, "Is there any way to avoid paying monthly Mortgage Insurance"? The short answer to that question is "yes", there is.
But as typical with most things in financing these days, there are asterisks attached to that answer ... and stipulations must be met first in order to do so.
The following 3 options are the most commonly applied methods of monthly Mortgage Insurance avoidance. I recommend that any Chicagoland Borrower considering their use have a long, detailed conversation with me (elsewhere your own Lender) to determine the pros and cons of each application and use.
1. Piggyback/Second Mortgages: These loans are often used in high-end housing markets where the proceeds of a Second Mortgage are used as a part of the Down Payment. This method allows the Borrower to essentially place a 20% Down Payment on a purchase of a home via a Second Mortgage.
If a Borrower has a 10% Down Payment available: The Borrower can utilize an HELOC (Home Equity Line of Credit) for the remaining monies needed (10%) to make a full 20% Down Payment on the purchase price of a home ... the level at which Mortgage Insurance is avoided. This, of course, results in a second Mortgage Payment, which ideally is less than their Mortgage Insurance monthly payment would have been.
The concept of using this option is to: Have the combination of the lower 1st Mortgage amount (aided by the use of the 2nd Mortgage), plus the lack of monthly Mortgage Insurance, result in a lower total monthly Mortgage Payment.
2. For those Borrowers uninterested in a Second Mortgage, but do NOT have a 20% Down Payment: Mortgage Insurance (in some form or another) is still a requirement in most all cases.
But ... a lump sum one-time prepayment of monies, in what's called a "Single-Premium Mortgage Insurance" arrangement is possible. This Single Premium Payment option is a one-time payment at Closing. It's made in addition to the other Closing Costs needing to be paid by the Borrower.
This method is most often utilized when Borrowers have the funds to do so ... or must keep the Monthly Mortgage Payment at an "Approvable Debt-to-Income Ratio".
Note: Seller-paid Closing Costs CAN also be used to "single pay", or help offset, the Mortgage Insurance.
3. Lender-Paid Mortgage Insurance: This option includes an Interest Rate that is higher than the normally available Interest Rate for the Borrower. The higher rate charged helps The LENDER to pay for the Mortgage Insurance. As a general rule of thumb, this option is less desirable for those intending to own that same Mortgage for 10 years or longer.
Again, all of the above options require in-depth analysis prior to any decision made or action being taken.
So, if a Borrower: Take the time to ask your LO questions regarding each option. Gain a thorough, detailed explanation as to each's application in your individual borrowing scenario before coming to any conclusions or taking action.
And remember, if I can help in any way, please contact me with your questions or needs ...
* Hoping to Buy or Refinance a Home in New Lenox or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I can be easily found at:
I can be easily found at:
Gene Mundt
Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed
American Portfolio Mortgage Corp.
nmls #175656
Direct: 815.524.2280
Cell or Text: 708.921.6331
eFax: 815.524.2281
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