How To Save On Mortgage Insurance ?

Answer 1

Mortgage insurance, also known as private mortgage insurance or PMI, is a mortgage guarantee insurance provided by a private insurer. The policy is security for your mortgage company or lender in the event that you are not able to make payments on your mortgage loan. In other words, if you default on your mortgage payments the insurer will compensate the mortgage company for their financial loss.

Generally speaking avoiding PMI, entails coming up with a 20% down payment when purchasing your home to avoid paying a mortgage insurance premium.

PMI charges vary slightly but as a homeowner you can typically expect to pay about $40-$50 each month per $100,000 financed. For example, for a $200,000 loan you might pay almost $100 per month in mortgage insurance or over $1,000 each year. Clearly, the larger your mortgage payment is the larger your mortgage insurance payment will be.

Keep in mind that that once you reach a 20% equity position in your property, you can have your property reappraised and your mortgage insurance payment can be eliminated. In rapidly appreciating real estate markets this process may only take two to five years. This is one way to save money with mortgage insurance; keep track of your equity position and request to have your PMI payment dropped when you reach 20%. Remember that mortgage insurance premiums are not tax deductible and this is one more reason you want to get rid of your PMI payment as soon as possible.

Mortgage Insurance And The Law

All home mortgages executed on or after July 29, 1999, must - with certain exceptions – terminate PMI automatically when you reach 22 per cent equity in your home if your mortgage payments are current. This 22% position is based on the original property value. Your mortgage insurance also can be canceled, upon your request - with some exceptions - when you reach 20 per cent equity in your home based on the original loan to value ration, again, if your mortgage payments are current.

One exception to the above-referenced scenario is when your loan is considered high-risk. Another exception is when you have not been current with your payments within the year preceding your request for termination or cancellation of your mortgage insurance payment. A third exception to the rule occurs when you have other liens on your property. For these other loans, your lender is permitted to continue assessing mortgage insurance payments. Check with your lender or mortgage servicer (the company that collects your mortgage payments) for more specific information concerning these requirements

Second Way To Save

A second option is available when it comes to saving on mortgage insurance payments (or avoiding them altogether) is obtaining a second loan to make up the short fall. If you have a 5% down payment available you can usually obtain a second mortgage for 15% to avoid a mortgage insurance payment. Be cautious with this approach as many unsuspecting homeowners end up paying more for their second mortgage than they would if they simply paid the PMI. Double check all of your financial assumptions when going this route. It may even be in your interest to check with your trusted financial professional.