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Avoiding private mortgage insurance

Posted by  on Apr 16, 2009
 
When looking into the different home loans and term agreements, be sure to look for the Private Mortgage Insurance costs which is required on all loan signings that have a loan-to-value ratio 80% or greater. This means that a home bought for $100,000 with a down payment of less than $20,000, will have to pay private mortgage insurance.

The big question with private mortgage insurance is knowing where the money goes to, since it does not go towards paying off the home loan. Instead, the private mortgage insurance insures the mortgage company against a default on the home loan. Especially since Louisiana mortgage broker tend to be high, many people cannot finance a full 20 percent. It has been said that paying less than 20 percent down payment on a home loan increases the chances of defaulting on a loan. Because of this, mortgage companies require the private mortgage insurance so they can bounce back easily in case of default. Generally, without the security of the private mortgage insurance, the lender would probably not make a loan. But since they are insured, they are willing to take the risk as long as the borrower has private mortgage insurance.

The borrower could see lower interest rates for a home loan, but after the private mortgage insurance is added on, the mortgage insurance premium may not be saving any money in the long run. That being said, private mortgage insurance can be disconcerting to the borrower because it is not tax deductible as other mortgage interest rates are. The insurance is paid and never seen again. It is best to get rid of the insurance as soon as possible. This is done by getting the loan-to-value ration down as quickly as possible. The mortgage company cannot force the payment of private mortgage insurance once the value is less than 80 percent. However, they will advise as to when eligibility is reached to discontinue the coverage and stop making mortgage insurance premium payments. This figure is determined from the most recent Maine home loans statement by dividing the remaining principal balance by the original purchase price of the home. It is up to the borrower to track the debt on the home loan and to figure out the debt to value ratio. It is even possible to qualify to quit the payments by virtue of appreciation. This is generally the case when the home increases in value shortly after it was purchased.

There are ways to prevent paying for private mortgage insurance and still have less than 20 percent down payment. Many Maine home loans companies offer two loans. For example, they will offer one home loan with a mortgage of 80 percent of the homes value, and another home loan with 10 percent of the homes value, and the down payment will be 10 percent. The same amount of money is being borrowed, but the lender in the first mortgage is only lending 80 percent of the entire loan amount, which makes it less risky than borrowing the full loan amount. Consequently, there is a smaller down payment and tax-deductible interest. Not to mention that the total monthly payments are often smaller than one larger loan with private mortgage insurance.

Another way to avoid private mortgage insurance is to get a loan that can build the private mortgage insurance into the interest rate. In this situation, the borrower agrees to pay a higher interest rate in exchange for a larger loan than normal. The interest rate is still tax deductible and is simpler than making two Maine home loans transactions.

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