Avoiding PMI
By
Max Hunter
PMI
- a recurring, monthly, unwelcome guest. It sounds similar to and is
about as welcomed as a similar acronym. PMI is private mortgage
insurance. This insurance policy is paid for by the homebuyer when the
amount of their primary mortgage is greater than 80f the value of the
property.
You will note that the term "primary mortgage" was used. This is
for a specific reason. It is not the total of all mortgages and home
loans on the property that is evaluated, but rather the amount of the
primary or largest mortgage on the property that can trigger PMI.
PMI is calculated by taking 0.5f your primary loan balance and
dividing it by 12 (12 monthly payments). For example, if your primary
mortgage is $200,000 and you are required to pay PMI, your mortgage
payments would be an additional $83.34 per month. For most homebuyers,
this additional premium is a considerable financial burden to
undertake.
There are ways around PMI for those homebuyers unable to put down
20r more on their new home. Mortgage lenders have created loan
packages which include two or more home loans that when combined exceed
the 80
hreshold, while no one of the loans exceed that threshold. Typically
there is a primary mortgage and either one or two home equity loans
taken out simultaneously which are 81 100or sometimes more) of the
home value. This affords the homebuyer to put less than 20
own, or perhaps put nothing down at all while at the same time
eliminating the need to pay PMI.
If you know you are going to be putting less than 20
own on the purchase of your home you should immediately speak to your
home lender about avoiding PMI. A good home lender will inform you
about these types of packages. Though the rules on these packages may
differ from state to state, the vast majority of states allow for these
types of loan packages.
When you review this type of package you will note that there will
invariably be a different interest rate on the mortgage than there is
on the home equity loan(s). The mortgage rate may have a slightly lower
interest rate or perhaps even a considerably lower interest rate. You
should be able to calculate what the monthly payments would be for the
combined loans and then determine if it comes out less than a single
mortgage with PMI. Obviously, a good lender is only going to present
you the package if the payments are cheaper than a single loan with
PMI.
You are able to refinance the loans at any point and combine them
into one payment. You would only do this when the value of the home is
more than 20
bove of the amount you will mortgage. As the value of
your home increases through home improvements or time, you can receive
an appraisal and speak to your home loan professional to determine if
refinancing the loans into one loan makes sense.
These types of loans are often referred to as 80-10-10 loans or
80-15 loans, among other names. An 80-10-10 loan is a mortgage at 80f
the amount to be financed and than two home equity loans at 10ach. You
will likely find that all three loans will have a different interest
rate with this type of package. 80-15 loans are similar but would be
the main loan at 80
nd a secondary loan at 15
About the author:
Max Hunter is the author of many credit related articles. If you are
looking for help with Home Loans or any type of credit issue please
visit us at http://www.homeloanave.com
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